13. Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

The following table sets forth the components of income tax expense (benefit) for the years ended December 31, 2017 and 2016:

	December 31, 2017			December 31, 2016
Current:
Federal	$	–		$	–
State and local		–			–
Foreign		70,547			67,978
Total current		70,547			67,978
Deferred:
Federal		–			–
State and local		–			–
Foreign		(36,851	)		4,458
Total deferred		(36,851	)		4,458
Total	$	33,696		$	72,436

The following table sets forth a reconciliation of income tax expense (benefit) at the federal statutory rate to recorded income tax expense (benefit) for the years ended December 31, 2017 and 2016:

	December 31, 2017		December 31, 2016
Tax benefit at statutory federal rate		–%		–%
Increase (decrease) in rate(s) resulting from:
Foreign operations, net		(0.6)		(0.7)
Change in deferred taxes		(26.6)		(2.9)
Change in valuation allowance		26.6		2.9
Total		(0.6)%		(0.7)%

The following tables set forth the components of income taxes payable as of December 31, 2017 and 2016;

	December 31, 2017		December 31, 2016
Federal	$	–		–
State and local		–		–
Foreign		46,963		30,317
Total	$	46,963	$	30,317

The following tables set forth the components of deferred income taxes as of December 31, 2017 and 2016:

	December 31, 2017			December 31, 2016
Non-current deferred tax assets:
Retirement benefits	$	71,249		$	71,916
Write down of investment(s)		65,958			66,575
Deferred revenue net		43,193			7,102
Other		20,890			20,308
Net operating loss carryforwards		5,143,029			3,546,627
Less: valuation allowance		(5,143,029	)		(3,546,627	)
Total non-current deferred tax asset		201,290			165,901
Total deferred tax asset	$	201,290		$	165,901

The deferred tax asset relates solely to the Company’s foreign operations at TDH. The company believes these assets are realizable in future periods due to the consistent historic profitability of TDH.

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (“TCJA”), which instituted fundamental changes to the taxation of multinational corporations, including a reduction the U.S. corporate income tax rate to 21% beginning in 2018. 

The TCJA also requires a one-time transition tax on the mandatory deemed repatriation of the cumulative earnings of certain of the Company’s foreign subsidiaries as of December 31, 2017. To determine the amount of this transition tax, the Company must determine the amount of earnings generated since inception by the relevant foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings, in addition to potentially other factors. The Company believes that no such tax will be due since TDH has paid taxes locally and that the cumulative undistributed earnings of TDH are not material.

As of December 31, 2017, the Company had federal, state and foreign net operating loss carryforwards of approximately $15,126,555 that are available to offset future liabilities for income taxes. The Company has generally established a valuation allowance against these carryforwards based on an assessment that it is more likely than not that these benefits will not be realized in future years. The federal and state net operating loss carryforwards expire at various dates through 2036.

The Company remains subject to examination in federal, state and foreign jurisdictions in which the Company conducts its operations and files tax returns. These tax years range from 2013 through 2017. The Company believes that the results of current or any prospective audits will not have a material effect on its financial position or results of operations as adequate reserves have been provided to cover any potential exposures related to these ongoing audits.

The Company has made its assessment of the level of tax authority for each tax position (including the potential application of interest and penalties) based on the technical merits and determined that no unrecognized tax benefits associated with the tax positions exist.