Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.4
Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 17 - INCOME TAXES

 

Loss before income taxes consists of the following:

 

    Year Ended December 31,  
    2018     2019     2020  
                   
U.S. operations   $ (5,066 )   $ (10,888 )   $ (15,492 )
Foreign operations     (746 )     (168 )     7,520  
                         
    $ (5,812 )   $ (11,056 )   $ (7,972 )

 

The provision for income taxes consist of the following:

 

    Year Ended December 31,  
    2018     2019     2020  
Current:                        
Federal   $ -     $ -     $ -  
State     -       119       45  
Foreign     -       (44 )     54  
      -       75       99  
Deferred:                        
Federal     -       -       -  
State     -       -       -  
Foreign     -       -       939  
      -       -       939  
Total provision for income taxes   $ -     $ 75     $ 1,038  

 

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,  
    2018     2019     2020  
                   
Income tax benefit at the federal statutory rate   $ (1,221 )   $ (2,317 )   $ (1,674 )
State and local income taxes, net of federal taxes     (800 )     (213 )     (421 )
Increase (decrease) in valuation allowance     (1,861 )     402       2,595  
Remeasurement of deferred tax assets     -       1,032       (48 )
Incentive stock options/forfeitures     (22 )     -       -  
Permanent differences and other     182       1066       1,146  
Other     -       (45 )     (560 )
                         
    $ -     $ (75 )   $ 1,038  

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2019 and 2020 are presented below:

 

    Year Ended December 31,  
    2019     2020  
             
Deferred tax assets:                
Net operating loss carryforwards   $ 35,871     $ 32,843  
Capital loss carryforwards     10,292       11,025  
Deferred revenue     1,167       1,775  
Stock-based compensation     534       886  
Federal research and development tax credits     1,058       1,058  
Intangibles, amortization     -       1,718  
Inventories     124       65  
Bad debt reserve     -       98  
Other deductible temporary differences     778       3,456  
                 
Total gross deferred tax assets     49,824       52,924  
Less: valuation allowance     (42,117 )     (46,070 )
                 
      7,707       6,854  
Deferred tax liabilities:                
Goodwill amortization     (11,276 )     (5,151 )
Fixed assets, depreciation     (222 )     (197 )
                 
      (11,498 )     (5,348 )
                 
Net deferred tax (liabilities)/assets   $ (3,791 )   $ 1,506  

 

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

 

    Year Ended December 31,  
    2019     2020  
             
Balance at the beginning of the year   $ 271     $ 390  
                 
Pointer uncertain tax positions assumed     112       -  
                 
Additions based on tax provisions taken related to current year     7       33  
                 
Balance at the end of year   $ 390     $ 423  

 

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, 2020, the Company had an aggregate net operating loss carryforward of approximately $85,612 for U.S. federal income tax purposes. At December 31, 2020, the Company had an aggregate net operating loss carryforward of approximately $148,267 for state income tax purposes and a foreign net operating loss carryforward of approximately $50,266. Substantially all of the net operating loss carryforwards expire from 2021 through 2037 for pre-2018 federal net operating loss carryforwards and from 2020 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 operating loss carryforward amounts in the future. 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, 2020, the Company has New Jersey net operating loss carryforwards (“NJ NOLs”) included above in the approximate amount of $45,050 expiring through 2039, which are available to reduce future earnings which would otherwise be subject to state income tax.

 

The Company is asserting permanent reinvestment of all accumulated undistributed earnings of its foreign subsidiaries as of December 31, 2020 in excess of annual debt service costs requirements.

 

On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law providing certain relief as a result of the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to net operating loss carryback periods, alternative minimum tax credit refunds, modification to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act does not have a material impact on the Company’s consolidated financial statements.

 

For the year ended December 31, 2020, the Company’s valuation allowance increased to $46,070 compared to $42,117 as of December 31, 2019 primarily due to the increase in the capital loss carryforward and 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 in 2019 and 2020 by $14,549, and $3,953 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.