Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.19.3.a.u2
Income Taxes
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

(8)

Income Taxes

 

(a)

Income Taxes

The income tax provisions for the years ended December 31 are as follows (in thousands):

 

 

2019

 

 

2018

 

 

2017

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. federal

 

$

145

 

 

$

67

 

 

$

21

 

State and local

 

 

3

 

 

 

6

 

 

 

3

 

Total current provision

 

 

148

 

 

 

73

 

 

 

24

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. federal

 

 

10

 

 

 

23

 

 

 

1

 

State and local

 

 

5

 

 

 

5

 

 

 

1

 

Total deferred provision

 

 

15

 

 

 

28

 

 

 

2

 

Total tax provision

 

$

163

 

 

$

101

 

 

$

26

 

 

(b)

Tax Rate Reconciliation

Reconciliations of the total income tax provision tax rate to the statutory federal income tax rate of 21%, 21%, and 34% for the years ended December 31, 2019, 2018, and 2017, respectively, are as follows (in thousands):

 

 

2019

 

 

2018

 

 

2017

 

Income taxes at statutory rates

 

$

229

 

 

$

(521

)

 

$

397

 

State income tax, net of federal benefit

 

 

8

 

 

 

10

 

 

 

4

 

Permanent items

 

 

(11

)

 

 

18

 

 

 

(5

)

Meals and entertainment

 

 

50

 

 

 

47

 

 

 

75

 

Equity based compensation

 

 

(8

)

 

 

(99

)

 

 

(646

)

Corporate tax rate change - impact on deferred

   income taxes

 

 

 

 

 

 

 

 

2,768

 

Research and development credit

 

 

(94

)

 

 

(195

)

 

 

207

 

Federal NOL adjustment

 

 

 

 

 

 

 

 

(386

)

Federal return to provision

 

 

101

 

 

 

(168

)

 

 

53

 

Other federal credits

 

 

-

 

 

 

 

 

 

112

 

Other

 

 

145

 

 

 

64

 

 

 

16

 

Change in federal valuation allowance

 

 

(257

)

 

 

945

 

 

 

(2,569

)

 

 

$

163

 

 

$

101

 

 

$

26

 


 

(c)

Significant Components of Current and Deferred Taxes

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, are as follows (in thousands):

 

 

2019

 

 

2018

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Net operating loss carryforwards

 

$

4,564

 

 

$

4,924

 

Research and AMT credits

 

 

2,208

 

 

 

2,074

 

Stock based compensation

 

 

387

 

 

 

327

 

Accrued and other

 

 

748

 

 

 

651

 

 

 

 

7,907

 

 

 

7,976

 

Less valuation allowance

 

 

(7,455

)

 

 

(7,659

)

Deferred tax assets, net of allowance

 

 

452

 

 

 

317

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Fixed assets

 

 

(288

)

 

 

(192

)

Goodwill

 

 

(216

)

 

 

(163

)

Deferred tax liabilities

 

 

(504

)

 

 

(355

)

Total deferred tax liabilities

 

$

(52

)

 

$

(38

)

 

The Company has established a valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realization of such assets. The Company periodically evaluates the recoverability of the deferred tax assets. At such time it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will be reduced. The Company has recorded a valuation allowance of $7.5 million as of December 31, 2019 as it does not believe it is more likely than not that certain deferred tax assets will be realized due to the recent history of both pre-tax book income and losses, the lack of taxable income available in carryback periods or feasible tax-planning strategies, the limited existing taxable temporary differences, and the subjective nature of forecasting future taxable income into the future.

At December 31, 2019, the Company had federal and California tax loss carryforwards of approximately $19.0 million, and $5.7 million, respectively. The federal loss generated in 2018 of $1.6 million will carryforward indefinitely and be available to offset up to 80% of future taxable income each year. The remaining federal and state net operating loss carry forwards begin to expire in 2020 and 2028, respectively, if unused.

At December 31, 2019, the Company had federal and state tax credit carry forwards of approximately $1.5 million, and $1.5 million, respectively, after reduction for uncertain tax positions. The federal credits will begin to expire in 2026, if unused, and the state credits carry forward indefinitely.

Pursuant to the Internal Revenue Code of 1986, as amended (IRC), specifically IRC §382 and IRC §383, the Company’s ability to use net operating loss and research and development tax credit carry forwards (“tax attribute carry forwards”) to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more than 50% within a three-year testing period. The Company has not completed an ownership change analysis pursuant to IRC Section 382 for taxable years ended after December 31, 2012. If ownership changes within the meaning of IRC Section 382 are identified as having occurred subsequent to 2012, the amount of remaining tax attribute carry forwards available to offset future taxable income and income tax expense in future years may be significantly restricted or eliminated. Further, the Company’s deferred tax assets associated with such tax attributes could be significantly reduced upon realization of an ownership change within the meaning of IRC §382.

 

 

 

The following table summarizes the reconciliation of the unrecognized tax benefits activity during the years ended December 31(in thousands):

 

 

2019

 

 

2018

 

Beginning unrecognized tax benefits

 

$

732

 

 

$

710

 

Decreases related to prior year tax positions

 

 

(7

)

 

 

(65

)

Increases related to current year tax positions

 

 

40

 

 

 

87

 

Ending unrecognized tax benefits

 

$

765

 

 

$

732

 

The unrecognized tax benefit amounts are reflected in the determination of the Company’s deferred tax assets. If recognized, $9,000 of these amounts would impact company’s effective tax rate. The Company does not foresee material changes to its uncertain tax benefits within the next twelve months.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company has an accrual for interest or penalties of $3,000 and $2,000 on the Company’s balance sheets as of December 31, 2019 and 2018, respectively, and has recognized interest and/or penalties of $1,000 in the Statement of Operations for each of the three years ended December 31, 2019.

Due to the existence of federal and state net operating loss and credit carryovers, the Company’s tax years that remain open and subject to examination by tax jurisdiction are years 2000 and forward for federal and years 2006 and forward for the state of California.