Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.21.1
Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

Note 12. Income Taxes

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

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Domestic

 

$

1,562

 

 

$

1,743

 

 

$

(3,083

)

Foreign

 

 

(427

)

 

 

14

 

 

 

345

 

Net income (loss) before income tax

 

$

1,135

 

 

$

1,757

 

 

$

(2,738

)

 

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

 

 

 

Year Ended December 31,

 

 

2020

 

 

2019

 

 

2018

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

 

 

$

 

 

$

 

State

 

 

 

 

 

 

 

 

 

Foreign

 

 

(7

)

 

 

7

 

 

 

(13

)

Total

 

 

(7

)

 

 

7

 

 

 

(13

)

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

 

 

 

 

 

 

 

State

 

 

 

 

 

 

 

 

 

Foreign

 

 

(83

)

 

 

(48

)

 

 

 

Total

 

 

(83

)

 

 

(48

)

 

 

 

Total tax expense (benefit)

 

$

(90

)

 

$

(41

)

 

$

(13

)

 

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

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Income tax at statutory rate

 

$

240

 

 

$

369

 

 

$

(575

)

Change in valuation allowance

 

 

(165

)

 

 

(17

)

 

 

1,595

 

Change in deferreds

 

 

8

 

 

 

100

 

 

 

7

 

State tax

 

 

(37

)

 

 

(133

)

 

 

(309

)

Stock-based compensation

 

 

(11

)

 

 

(420

)

 

 

(615

)

Research and development credit

 

 

(103

)

 

 

(82

)

 

 

(220

)

Foreign rate differential

 

 

(40

)

 

 

(43

)

 

 

(86

)

Other

 

 

18

 

 

 

185

 

 

 

190

 

Total

 

$

(90

)

 

$

(41

)

 

$

(13

)

 

Temporary differences that gave rise to significant portions of the Company’s deferred tax assets and liabilities as of December 31, 2020 and 2019 were as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Net operating losses

 

$

20,265

 

 

$

21,556

 

Credits

 

 

2,292

 

 

 

2,055

 

Accruals and reserves

 

 

1,648

 

 

 

767

 

Deferred revenue and contract costs

 

 

296

 

 

 

116

 

Gross deferred tax assets

 

 

24,501

 

 

 

24,494

 

Valuation allowance

 

 

(23,667

)

 

 

(23,693

)

Net deferred tax assets

 

 

834

 

 

 

801

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Fixed assets and intangibles

 

 

(785

)

 

 

(836

)

Total deferred tax assets (liabilities), net

 

$

49

 

 

$

(35

)

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company regularly assesses the likelihood that the deferred tax assets will be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred taxes to an amount that is more likely than not able to be realized. Based upon the Company’s assessment of all available evidence, including the previous three years of U.S. based taxable income and loss after permanent items, estimates of future profitability, and the Company’s overall prospects of future business, the Company determined that it is more likely than not that the Company will not be able to realize a portion of the deferred tax assets in the future. The Company will continue to assess the potential realization of deferred tax assets on an annual basis, or an interim basis if circumstances warrant. If the Company’s actual results and updated projections vary significantly from the projections used as a basis for this determination, the Company may need to change the valuation allowance against the gross deferred tax assets. Management determined that a valuation allowance of $23.7 million and $23.7 million was required as of December 31, 2020 and 2019, respectively.

The federal and state loss carryforwards begin to expire in 2026 and 2021, respectively, unless previously utilized. At December 31, 2020 and 2019, the Company had available net operating loss carryforward of approximately $80.4 million and $85.6 million, respectively, for federal income tax purposes, of which $75.5 million were generated before 2018 and will begin to expire in 2026. The remaining net operating losses of $5.0 million can be carried forward indefinitely under Tax Cuts and Jobs Act. The Company continually monitor all positive and negative evidence regarding the realization of its deferred tax assets and may record assets when it

becomes more likely than not, than they will be realized, which may impact the expense or benefit from income taxes.

At December 31, 2020 and 2019, the net operating losses for state purposes are $51.1 million and $55.0 million, respectively, and will begin to expire in 2021 if not utilized.

As of December 31, 2020, the Company had available for carryover research and experimental credits for federal and California income tax purposes of approximately $1.2 million and $1.3 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. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.

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

 

Balance as of December 31, 2018

 

$

734

 

Increases for current year tax positions

 

 

75

 

Decrease for prior year tax positions

 

 

(37

)

Balance as of December 31, 2019

 

 

772

 

Increases for current year tax positions

 

 

70

 

Increases for prior year tax positions

 

 

17

 

Balance as of December 31, 2020

 

$

859

 

 

Of the total unrecognized tax benefits at December 31, 2020, no amount will impact the Company's effective tax rate. The Company does not anticipate that there will be a substantial change in unrecognized tax benefits within the next 12 months.

The Company recognizes interest and penalties related to unrecognized tax positions within the income tax expense line in the accompanying consolidated statements of operations. There were no accrued interest and penalties associated with uncertain tax positions as of December 31, 2020 or December 31, 2019.

The Company files federal and state income tax returns in the U.S, certain U.S. territories, and certain foreign jurisdictions. The statues of limitations remain open for 2006 through 2020 in U.S. for federal and state purposes in the U.S. and certain U.S. territories. Years beyond the normal statutes 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.

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.