|12 Months Ended|
Dec. 31, 2019
On December 31, 2017, the Company converted from a limited liability company and became a taxable entity (“C Corporation”).
The domestic and foreign components of loss before provision for income taxes for the years ended December 31, 2019 and 2018 were as follows:
The following represent components of the income tax expense for the years ended December 31, 2019 and 2018:
Tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets at December 31, 2019 and 2018 are presented below:
The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of the Company’s net deferred tax assets. The Company primarily considered such factors as the Company’s history of operating losses; the nature of the Company’s deferred tax assets and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does not believe that it is “more-likely-than-not” that the deferred tax assets will be realized; accordingly, a full valuation allowance was maintained, and no deferred tax assets were shown in the accompanying consolidated balance sheets. The valuation allowance increased by $2,599,000 and decreased by $7,096,000 during the years ended December 31, 2019 and 2018, respectively.
As of December 31, 2019, the Company had federal net operating loss carryforwards of $25,598,000. The federal net operating loss carryforwards will carryforward indefinitely but are subject to the 80% taxable income limitation.
As of December 31, 2019, the Company had state net operating loss carryforwards of $25,589,000, which will begin to expire in 2038.
As of December 31, 2019, the Company had foreign net operating loss carryforwards of $24,000, which will begin to expire in 2027.
Utilization of the Company’s net operating losses and credit carryforwards may be subject to annual limitations in the event of a Section 382 ownership change. Such future limitations could result in the expiration of net operating losses and credit carryforwards before utilization as a result of such an ownership change.
Provision for income taxes for the years ended December 31, 2019 and 2018 differed from the amounts computed by applying the statutory federal income tax rate of 21% to loss before provision for income taxes as a result of the following:
Tax positions are evaluated in a two-step process. The Company first determines whether it is “more-likely-than-not” that a tax position will be sustained upon examination. If a tax position meets the “more-likely-than-not” recognition threshold it is then measured to determine the amount of benefit to recognize in the consolidated financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The aggregate changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for the years ended December 31, 2019 and 2018 is zero.
The Company has not incurred any material tax interest or penalties as of December 31, 2019. The Company does not anticipate any significant change within 12 months of this reporting date of its uncertain tax positions. The Company is subject to taxation in the United States, Japan, and various state jurisdictions. There are no ongoing examinations by taxing authorities at this time. The Company’s various tax years 2013 through 2019 remain open for examination by various taxing jurisdictions.
The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes. As of December 31, 2019 and 2018, the Company has not accrued any penalties or interest related to uncertain tax positions.
The Company intends to indefinitely reinvest the Japan earnings outside of the U.S. as of December 31, 2019. Thus, deferred taxes are not provided in the U.S. for unremitted earnings in Japan.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef