Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

The components of income (loss) before income tax provision are as follows for the years ended December 31:

	2020			2019			2018
	(in thousands)
United States	$	(7,089	)	$	(15,647	)	$	(39,334	)
International		279			428			512
Total loss before income tax provision	$	(6,810	)	$	(15,219	)	$	(38,822	)

Income tax expense (benefit) from continuing operations consists of the following for the years ended December 31:

	2020			2019			2018
	(in thousands)
Current:
Federal	$	—		$	—		$	32
State		10			10			(6	)
Foreign		—			—			—
		10			10			26
Deferred:
Federal		(562	)		(2,065	)		(6,213	)
State		(159	)		(417	)		(1,188	)
Foreign		—			—			—
		(721	)		(2,482	)		(7,401	)
Change in federal tax rate		—			—			—
Valuation allowance		721			2,482			7,369
Total income tax expense (benefit)	$	10		$	10		$	(6	)

The reconciliations of the U.S. federal statutory rate to the effective income tax rate for the years ended December 31, 2020, 2019 and 2018, are as follows:

	2020			2019			2018
Tax provision at U.S. federal statutory rates		21.0	%		21.0	%		21.0	%
State income taxes net of federal benefit		2.1			3.0			3.2
Deferred tax asset adjustments – NOL related		0.0			(0.4	)		(0.2	)
Non-deductible permanent items		(1.1	)		(0.3	)		(0.2	)
Stock options		(28.0	)		(3.2	)		(3.4	)
Goodwill impairment		0.0			—			(1.5	)
Other		0.0			(3.9	)		(0.2	)
Change in valuation allowance		5.8			(16.3	)		(18.7	)
Effective income tax rate		(0.2	)%		(0.1	)%		0.0	%

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred taxes as of December 31, 2020 and 2019 are as follows:

	2020			2019
	(in thousands)
Deferred tax assets:
Allowance for doubtful accounts	$	103		$	187
Accrued liabilities		412			826
Net operating loss carryforwards		24,798			23,933
Intangible assets		4,259			4,334
Share-based compensation expense		228			2,120
Other		1,370			406
Total gross deferred tax assets		31,181			31,806
Valuation allowance		(30,447	)		(31,168	)
Total deferred tax assets		734			638
Deferred tax liabilities:
Right of use assets		(733	)		(638	)
Fixed assets		—			—
Other		(1	)		—
Total gross deferred tax liabilities		(734	)		(638	)
Net deferred tax assets	$	—		$	—

On December 22, 2017, the U.S. government enacted comprehensive tax legislation known as the TCJA. The TCJA established new tax laws that will take effect in 2018, including, but not limited to (i) reduction of the U.S. federal corporate tax rate from a maximum of 35% to 21%; (ii) elimination of the corporate AMT; (iii) a new limitation on deductible interest expense; (iv) the Transition Tax; (v) limitations on the deductibility of certain executive compensation; (vi) changes to the bonus depreciation rules for fixed asset additions; and (vii) limitations on NOLs generated after December 31, 2017, to 80% of taxable income.

ASC 740, “Income Taxes,” requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the TCJA’s provisions, the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740.

In 2017, we recorded provisional amounts for certain enactment date effects of the TCJA, for which the accounting had not been finalized, by applying the guidance in SAB 118. At December 31, 2017, the Company recorded a decrease in deferred tax assets and deferred tax liabilities of $11.7 million and $0.0 million, respectively, with a corresponding net adjustment to deferred income tax expense of $11.7 million for the year ended December 31, 2017. In addition, the Company recognized a deemed repatriation of $0.6 million of deferred foreign income from its Guatemala subsidiary, which did not result in any incremental tax cost after application of foreign tax credits. Accordingly, the Company completed our accounting for the effects of the TCJA in 2018 and did not recognize any material adjustments to the 2017 provisional income tax expense.

The TCJA created a provision known as GILTI that imposes a U.S. tax on certain earnings of foreign subsidiaries that are subject to foreign tax below a certain threshold. The Company has made an accounting policy election to reflect GILTI taxes, if any, as a current income tax expense in the period incurred.

During 2020 and 2019, the Company continued to experience losses and is not projecting taxable income in the near future. Based on this evaluation, the Company recorded an additional valuation allowance of $0.7 million and $2.5 million against its deferred tax assets during the years ended 2020 and 2019, respectively. Based on the weight of available evidence, the Company believes that it is more likely than not that these deferred tax assets will not be realized.

In response to the coronavirus pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the TCJA. Corporate taxpayers may carryback net operating losses (“NOL’s”) originating during 2018 through 2020 for up to five years, which was not previously allowed under the TCJA. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020.

Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the TCJA) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the TCJA. The enactment of the CARES Act did not result in any material adjustments to the Company’s income tax provision for the year ended December 31, 2020, or to its net deferred tax assets as of December 31, 2020.

The CARES Act lifts certain deduction limitations originally imposed by the TCJA. Corporate taxpayers may carryback NOLs originating during 2018 through 2020 for up to five years, which was not previously allowed under the TCJA. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020.

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act of 2021 (the “Act”).  The Act enhances and expands certain provisions of the CARES Act.  The Act permits taxpayers whose PPP loans are forgiven to deduct the expenses relating to their loans to the extent they would otherwise qualify as ordinary and necessary business expenses. This rule applies retroactively to the effective date of the CARES Act, so that expenses paid using funds from PPP loans previously issued under the CARES Act are deductible, regardless of when the loan was forgiven. The Company’s $1.4M PPP loan was completely forgiven in January 2021 and the expenses are currently deductible on the Company’s 2020 Federal tax return.

On December 31, 2020, the Company had federal and state NOLs of approximately $104.1 million and $48.9 million, respectively.  $30.0 million of the federal NOLs have an indefinite life and do not expire. The remaining $74.1 million of the federal and all of the state NOLs expire through 2035 and 2040, respectively, as follows:

The federal NOLs expire through 2035 as follows (in millions):

2025	$	4.2
2026		25.5
2027		15.5
2028		5.2
2029		7.7
2030		10.6
2031		1.3
2032		—
2033		0.1
2034		2.5
2035		1.5
Do not expire		30.0
	$	104.1

The state NOLs expire through 2040 as follows (in millions):

2028	$	2.6
2029		5.8
2030		11.0
2034		1.4
2035		0.8
2038		2.3
2039		2.2
2040		0.6
California NOLs		26.8
Other State NOLs		22.1
Total State NOLs	$	48.9

Utilization of the NOLs and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the IRC, as well as similar state provisions. These ownership changes may limit the amount of NOLs and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.  A Section 382 ownership change occurred in 2006 and any changes have been reflected in the NOLs presented above as of December 31, 2020.  

The federal and state NOLs begin to expire in 2025 and 2028, respectively. Approximately $10.8 million and $5.0 million, respectively, of the federal and state NOLs were incurred by subsidiaries prior to the date of the Company’s acquisition of such subsidiaries. The Company established a valuation allowance of $4.1 million at the date of acquisitions related to these subsidiaries. The tax benefits associated with the realization of such NOLs was credited to the provision for income taxes.

At December 31, 2020, the Company has state research and development tax credit carryforwards of $0.2 million.  The previous federal tax credits have been written off in the current year and the state credits do not expire.

As of December 31, 2020, and 2019, the Company had unrecognized tax benefits of approximately $0.2 million and $0.5 million, respectively, all of which, if subsequently recognized, would have affected the Company’s tax rate.  A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2020			2019
	(in thousands)
Balance at January 1,	$	464		$	464
Reductions based on tax positions related to prior years and settlements		(275	)		—
Balance at December 31,	$	189		$	464

The Company is subject to taxation in the United States and various foreign and state jurisdictions. In general, the Company is no longer subject to U.S. federal and state income tax examinations for years prior to 2017 and 2016, respectively (except for the use of tax losses generated prior to 2017 that may be used to offset taxable income in subsequent years). The Company does not anticipate a significant change to the total amount of unrecognized tax benefits within the next twelve months.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company has not accrued any interest associated with its unrecognized tax benefits in the years ended December 31, 2020 and 2019.