Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.1
Income Taxes
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 18 - INCOME TAXES

 

Loss before income taxes consists of the following:

 

    Year Ended December 31,  
    2017     2018     2019  
                   
U.S. operations   $ (4,425 )   $ (5,066 )   $ (10,888 )
Foreign operations     (244 )     (746 )     (168 )
                         
    $ (4,181 )   $ (5,812 )   $ (11,056 )

 

The difference between income taxes at the statutory federal income tax rate and income taxes reported in the Consolidated Statements of Operations is attributable to the following:

 

    Year Ended December 31,  
    2017     2018     2019  
                   
Income tax benefit at the federal statutory rate   $ (1,316 )   $ (1,221 )   $ (2,317 )
State and local income taxes, net of effect on federal taxes     (441 )     (800 )     (213 )
Increase (decrease) in valuation allowance     (8,509 )     (1,861 )     402  
Remeasurement of deferred tax assets     -       -       1,032  
Incentive stock options/forfeitures     (11 )     (22 )     -  
Permanent differences and other     508       182       1,066  
Other     -       -       (45 )
Change in Federal tax rate     10,848       -       -  
Research and development tax credits     (1,390 )     -       -  
                         
    $ (311 )   $ -     $ (75 )

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2018 and 2019 are presented below:

 

    December 31,  
    2018     2019  
             
Deferred tax assets:                
Net operating loss carryforwards   $ 22,988     $ 35,871  
Capital loss carryforwards     -       10,292  
Deferred revenue     1,564       1,167  
Stock-based compensation     732       534  
Federal research and development tax credits     1,058       1,058  
Intangibles, amortization     861       -  
Inventories     149       124  
Other deductible temporary differences     549       847  
                 
Total gross deferred tax assets     27,901       49,893  
Less: Valuation allowance     (27,568 )     (42,117 )
                 
      333       7,776  
Deferred tax liabilities:                
Goodwill amortization     -       (11,276 )
Fixed assets, depreciation     (333 )     (222 )
                 
      (333 )     (11,498 )
                 
Net deferred tax liabilities   $ -     $ (3,722 )

 

A reconciliation of the beginning and ending amount of unrecognized tax positions is as follows:

 

    December 31,  
    2018     2019  
             
Balance at the beginning of the year   $ -     $ 271  
                 
Pointer uncertain tax positions assumed             112  
                 
Additions based on tax positions taken related to the current year     -       7  
                 
Balance at the end of the year   $ -     $ 390  

 

The unrecognized tax benefits, if recognized, would reduce the Company’s annual effective tax rate. The Company does not expect any significant changes to its unrecognized tax positions during the next twelve months. 

 

At December 31, 2019, the Company had an aggregate net operating loss carryforward of approximately $90,690 for U.S. federal income tax purposes. At December 31, 2019, the Company had an aggregate net operating loss carryforward of approximately 161,101 for state income tax purposes and a foreign net operating loss carryforward of approximately $64,142. Substantially all of the net operating loss carryforwards expire from 2021 through 2037 for pre-2018 federal net operating loss carryforwards and from 2019 through 2038 for state purposes. The net operating loss carryforwards may be limited to use in any particular year based on Internal Revenue Code (“IRC”) Section 382 related to change of ownership restrictions. Section 382 of the IRC imposes an annual limitation on the utilization of NOL carryforwards based on long-term bond rates and the value of the corporation at the time of a change in ownership as defined by Section 382 of the IRC. In 2019, the Company incurred a change in ownership under Section 382 of the IRC and this change of ownership is not expected to materially impact the Company’s ability to utilize its net operation loss carryforward amounts in the future. As the NOL’s are fully reserved there is no impact on the realizability of the NOL’s. In addition, future stock issuances may subject the Company to further limitations on the utilization of its net operating loss carryforwards under the same Internal Revenue Code provision.

 

At December 31, 2019, the Company has New Jersey net operating loss carryforwards (“NJ NOLs”) included above in the approximate amount of $46,480 expiring through 2038, which are available to reduce future earnings which would otherwise be subject to state income tax. In 2017, the Company sold approximately $332 of NJ research and development tax credits, subject to a 6.2% seller’s allocation factor for approximately $311.

 

The Company has historically considered the undistributed earnings of its foreign subsidiaries other than Israel to be permanently reinvested to finance anticipated future growth and expansion. US income taxes were not provided on cumulative undistributed earnings of such foreign subsidiaries as of December 31, 2019 and 2018.

 

On December 22, 2017, the U.S. President signed the Tax Cuts and Jobs Act (the “Tax Act”) into law. Effective January 1, 2018, among other changes, the Tax Act (1) reduces the U.S. federal corporate tax rate from 35 percent to 21 percent, (2) changes the rules relating to net operating loss carryforwards and carrybacks, (3) eliminates the corporate alternative minimum tax (“AMT”) and changes how existing AMT credits can be realized; and (4) requires companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries. The Company has elected to account for the Global Intangible Low-Taxed Income (“GILTI”) tax as a period cost in the year the tax is incurred.

 

The Tax Act did not have a material impact on our consolidated financial statements since our deferred temporary differences in the United States are fully offset by a valuation allowance and we do not have any significant off shore earnings from which to record the mandatory transition tax.

 

On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the Tax Act as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. The changes in the Tax Act are broad and complex. The final impacts of the Tax Act may differ from the Company’s estimates due to, among other things, changes in interpretations of the Tax Act, further legislation related to the Tax Act, changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates to estimates the Company has utilized to calculate the impacts of the Tax Act. The SEC has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the related tax impacts. The Company completed its SAB 118 analysis and the impact on the Company’s consolidated financial statements for the year ended December 31, 2017 was immaterial, primarily because the Company has a valuation allowance on deferred tax assets.

 

For the year ended December 31, 2019, the Company’s valuation allowance increased to $42,117 compared to $27,568 as of December 31, 2018 primarily due to the acquired capital loss carryforward and the increase in US NOL’s. The Company has provided a valuation allowance against the full amount of its domestic deferred tax assets and the majority of the foreign deferred tax assets. The valuation allowance was established because of the uncertainty of realization of the deferred tax assets due to lack of sufficient history of generating taxable income. Realization is dependent upon generating sufficient taxable income prior to the expiration of the net operating loss carryforwards in future periods. The valuation allowance increased (decreased) in 2017, 2018 and 2019 by $(5,641) (net of the decrease of $10,848 due to the decrease in federal corporate tax rate to 21% as a result of the Tax Act), $1,505, and $14,549, respectively.

 

Audits for federal income tax returns are closed for the years through 2015. However, the Internal Revenue Service (“IRS”) can audit the NOL’s generated during those years in the years that the NOL’s are utilized. State income tax returns are generally subject to examination for a period of three to six years after the filing of the respective tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Foreign income tax returns are generally subject to examination based on the tax laws of the respective jurisdictions.