Notes to Consolidated Financial Statements (continued)
Notes to Consolidated Financial Statements
(continued)
42
M
anagement establishes a valuation allowance for those deductible temporary differences when it is more likely than not that the benefit of such deferred tax assets will not be recognized. The ultimate realization of deferred tax assets is dependent upon the Company´s ability to generate taxable income during the periods in which the temporary differences become deductible. Management considers the historical level of taxable income, projections for future taxable income, and tax planning strategies in making this assessment. Management´s assessment in the near term is subject to change if estimates of future taxable income during the carry forward period are reduced.
The Company is subject to the "ownership change" rules of Section 382 of the Internal Revenue Code. Under these rules, our use of NOLNOLNOLs could be limited in tax periods following the date of an ownership change. The Company had an ownership change during 2008 that triggered these limitations and will have a US$5.5 million limitation on NOLNOLNOL utilization for the next three tax years.
Given the Company does not have a history of taxable income or a basis on which to assess its likelihood of the generation of future taxable income, management has determined that it is most appropriate to reflect a valuation allowance equal to its net deferred tax assets. The total valuation allowance at December 31, 2008 was US$15.7 million (2007: US$10.8 million).
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FAS 109 (FIN 48). This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company´s financial statements. The Company adopted FIN 48 on January 1, 2007. The implementation of FIN 48 had no impact on the Company´s consolidated financial statements, results of operations or cash flows.
The Company recognizes both accrued interest and penalties related to unrecognized benefits in income tax expense. The Company has not recorded any interest and penalties on any unrecognized tax benefits since its inception.
(13) Earnings Per Share
Basic earnings per common share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share were determined based on the assumption of the conversion of stock options using the treasury stock method at average market prices for the periods.
2008
2007
L
oss available to common
shareholders
N N N
et loss
$ (17,404,811
)
$ (16,537,854
)
Weighted average shares
outstanding
20,702,527
19,756,955
P
er share information:
Basic and diluted loss
per share
$ 0.84
$ 0.84
Diluted shares outstanding do not assume the conversion
of stock appreciation rights or warrants outstanding of 1,670,249 (2007: 103,939) common shares as it would have an anti-dilutive effect on earnings per share.
(14) Reportable Segment Information
The Company´s reportable segments are strategic business units that offer different products. They are managed separately because each business requires different knowledge, skills and marketing strategies.
