13. Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

13. INCOME TAXES

The following table sets forth the components of income tax expense (benefit) for the years ended December 31, 2018 and 2017:

	December 31, 2018			December 31, 2017
Current:
Federal	$	–		$	–
State and local		–			–
Foreign		74,356			70,457
Total current		74,356			70,457
Deferred:
Federal		–			–
State and local		–			–
Foreign		(59,412	)		(36,851	)
Total deferred		(59,412	)		(36,851	)
Total	$	14,944		$	33,696

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, 2018 and 2017:

	December 31, 2018			December 31, 2017
Tax benefit at the statutory federal rate		–%			–%
Increase (decrease) in rate(s) resulting from:
Foreign operations, net		(0.3	)		(0.6	)
Change in deferred taxes		21.3			(26.6	)
Change in valuation allowance		(21.3	)		26.6
Total		(0.3	)%		(0.6	)%

The following tables set forth the components of income taxes payable as of December 31, 2018 and 2017:

	December 31, 2018		December 31, 2017
Federal	$	–	$	–
State and local		–		–
Foreign		41,907		46,963
Total	$	41,907	$	46,963

(a) The reduction of the valuation allowance was due to the change in U.S. corporate tax rates from 34% to 21% starting in 2018.

The following tables set forth the components of deferred income taxes as of December 31, 2018 and 2017:

	December 31, 2018			December 31, 2017
Non-current deferred tax assets:
Retirement benefits	$	67,439		$	71,249
Write down of investment(s)		62,421			65,958
Deferred revenue net		96,090			43,193
Other		23,833			20,890
Net operating loss carryforwards		4,150,813			5,143,029
Less: valuation allowance		(4,150,813	)		(5,143,029	)
Total non-current deferred tax asset		249,783			201,290
Total deferred tax asset	$	249,783		$	201,290

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, 2018, the Company had federal, state and foreign net operating loss carryforwards of approximately $19,765,774 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.