Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.10.0.1
Income Taxes
12 Months Ended
Dec. 31, 2018
Text Block [Abstract]  
Income Taxes

Note 11. Income Taxes

The domestic and foreign components of net loss were as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Domestic

 

$

(3,083

)

 

$

(10,125

)

 

$

(6,744

)

Foreign

 

 

345

 

 

 

305

 

 

 

(116

)

Net loss

 

$

(2,738

)

 

$

(9,820

)

 

$

(6,860

)

 

The provision for income tax consists of the following (in thousands):

 

 

 

Year Ended December 31,

 

 

2018

 

 

2017

 

 

2016

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

 

 

$

 

 

$

 

State

 

 

 

 

 

 

 

 

 

Foreign

 

 

(13

)

 

 

160

 

 

 

 

Total

 

 

(13

)

 

 

160

 

 

 

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

 

 

 

 

 

 

 

State

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Total tax expense

 

$

(13

)

 

$

160

 

 

$

 

 

A reconciliation of income taxes at the statutory federal income tax rate to net income taxes included in the accompanying consolidated statements of operations is as follows (in thousands):

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Income tax at statutory rate

 

$

(575

)

 

$

(3,339

)

 

$

(2,331

)

Change in valuation allowance

 

 

1,595

 

 

 

(8,354

)

 

 

2,146

 

Change in tax rate

 

 

 

 

 

9,788

 

 

 

 

Change in deferreds

 

 

7

 

 

 

(39

)

 

 

 

State tax

 

 

(309

)

 

 

536

 

 

 

9

 

Mark-to-market on warrants

 

 

 

 

 

1,267

 

 

 

178

 

Stock-based compensation

 

 

(615

)

 

 

84

 

 

 

24

 

Research and development credit

 

 

(220

)

 

 

(62

)

 

 

(88

)

Foreign rate differential

 

 

(86

)

 

 

56

 

 

 

40

 

Subpart F - transition tax

 

 

81

 

 

 

68

 

 

 

 

Lobbying

 

 

78

 

 

 

79

 

 

 

 

Other

 

 

31

 

 

 

76

 

 

 

22

 

Total

 

$

(13

)

 

$

160

 

 

$

 

 

Temporary differences that gave rise to significant portions of the Company’s deferred tax assets and liabilities as of December 31, 2018 and 2017 were as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Net operating losses

 

$

21,461

 

 

$

20,139

 

Credits

 

 

1,969

 

 

 

1,654

 

Accruals and reserves

 

 

285

 

 

 

643

 

Deferred revenue and contract costs

 

 

458

 

 

 

464

 

Gross deferred tax assets

 

 

24,173

 

 

 

22,900

 

Valuation allowance

 

 

(23,710

)

 

 

(22,789

)

Net deferred tax assets

 

 

463

 

 

 

111

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Fixed assets and intangibles

 

 

(545

)

 

 

(111

)

Total deferred tax liabilities, net

 

$

(82

)

 

$

 

 

 

 

 

 

 

 

 

 

 

Realization of deferred tax assets is dependent upon future taxable income, if any, the timing and amount of which are uncertain. Management has determined that the deferred tax assets are not realizable on a more likely than not basis. Accordingly, deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $0.9 million during the year ended December 31, 2018.

As of December 31, 2018, we had federal net operating loss carryforwards of approximately $85.4 million, of which $80.6 million will expire between 2026 through 2037, if not utilized, and $4.8 million which do not expire. As of December 31, 2018, we also had state NOLs of approximately $54.3 million, which will expire, if not utilized, in 2019 through 2038.

As of December 31, 2018, the Company had available for carryover research and experimental credits for federal and California income tax purposes of approximately $1.5 million and $1.5 million, respectively, which are available to reduce future income taxes. The federal research and experimental tax credits will begin to expire, if not utilized, in 2026. The California research and experimental tax credits carry forward indefinitely until utilized.

Section 382 of the Internal Revenue Code of 1986 (the “Code”), as amended, and similar California regulations impose substantial restrictions on the utilization of net operating losses and tax credits in the event of an “ownership change” of a corporation. Accordingly, the Company’s ability to utilize net operating losses and credit carryforwards may be limited as the result of such an “ownership change” as defined in the Code.

Uncertain Tax Positions

The Company applied FASB ASC 740-10-50, Accounting for Uncertainty in Income Tax, which prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company classifies interest and penalties as a component of tax expense.

The Company had unrecognized tax benefits of approximately $0.7 million as of December 31, 2018, all of which was offset by a full valuation allowance. No interest or penalties have been accrued as of December 31, 2018.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):

 

Balance as of December 31, 2016

 

$

574

 

Increases for current year tax positions

 

 

46

 

Increases for prior year tax positions

 

 

 

Balance as of December 31, 2017

 

 

620

 

Increases for current year tax positions

 

 

114

 

Increases for prior year tax positions

 

 

 

Balance as of December 31, 2018

 

$

734

 

 

Unrecognized tax benefits may change during the next 12 months for items that arise in the ordinary course of business. The Company does not anticipate a material change to its unrecognized tax benefits over the next 12 months that would affect the Company’s effective tax rate.

The Company files income tax returns in federal, various state and U.S. territory jurisdictions, and South Africa. The statute of limitations remains open for fiscal years 2005 through 2017 in the United States and the various state and the U.S. territory jurisdictions. Years beyond the normal statute of limitations remain open to audit by tax authorities due to tax attributes generated in earlier years which are being carried forward and may be audited in subsequent years when utilized.

On December 22, 2017, the 2017 Tax Cut and Jobs Act (the Act) was enacted into law and the new legislation contains several key tax provisions, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the estimated transition tax, re-measuring our U.S. deferred tax assets and liabilities at a 21% rate as well as reassessing the net realizability of our deferred tax assets and liabilities. The one-time transition tax does not generate a tax liability as the deemed distribution is offset by tax attributes. The provisional amount related to the re-measurement of our deferred tax balance is a reduction of approximately $9.8 million. Due to the corresponding valuation allowance fully offsetting deferred taxes, there is no income statement impact.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118) which allows companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation was yet to be issued, our accounting of the deferred tax re-measurements were incomplete as of December 31, 2017. The 2017 Federal corporate income tax return was filed in fourth quarter of 2018. The final analysis and impact of the Act is reflected in the tax provision and related tax disclosures for the year ended December 31, 2018. There were no material differences to the originally estimated $9.8 million remeasurement of deferred tax assets.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. For the year ended December 31, 2018, the Company has elected to treat any potential GILTI inclusions as a period cost.