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Income Taxes
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
Income tax (benefit)/expense from continuing operations consisted of the following for the periods indicated:
 
Years ended December 31,
 
2019
 
2018
Current:
 
 
 
Federal
$
1,466,770

 
$
(44,727
)
State
227,912

 
92,545

Deferred federal
(2,849,371
)
 

Deferred state
(499,661
)
 

Income tax (benefit)/expense
$
(1,654,350
)
 
$
47,818



Deferred tax assets and liabilities consist of the following components:
 
December 31, 2019
 
December 31, 2018
 
 
Long-Term
 
 
Long-Term
Bad debt and inventory reserve
 
$
376,331

 
 
$
332,721

Inventory adjustment
 

 
 
(21,785
)
UNICAP
 
4,828

 
 
2,804

Deferred revenue
 
130,058

 
 
115,676

ASC842 Lease Accounting (DTA)
 
796,864

 
 
288,017

ASC842 Lease Accounting (DTL)
 
(544,539
)
 
 

Depreciation and amortization
 
(2,134,569
)
 
 
(838,540
)
Net operating loss carryforwards- Luna
 
349,421

 
 
349,421

Net operating loss carryforwards- API
 
1,169,671

 
 
1,265,538

Net operating loss carryforwards - state
 
150,050

 
 
179,149

Net operating loss carryforwards- Canada
 
10,503

 
 
10,503

Accrued liabilities
 
594,450

 
 
394,118

Deferred compensation
 
294,190

 
 
216,944

Stock-based compensation
 
373,658

 
 
803,757

Restricted stock
 
102,741

 
 
60,681

State bonus
 
33,791

 
 
44,861

Performance based compensation
 
9,499

 
 

Transaction costs
 
58,540

 
 
63,668

Total
 
1,775,487

 
 
3,267,533

Valuation allowance
 
(359,924
)
 
 
(3,267,533
)
Net deferred tax asset
 
$
1,415,563

 
 
$


The net deferred tax asset is included in other non-current assets on the consolidated balance sheet.

The (benefit)/expense from income taxes from continuing operations differs from the amount computed by applying the federal statutory income tax rate to our loss from continuing operations before income taxes as follows for the periods indicated:
 
 
Years ended December 31,

 
2019
 
2018
Income tax expense at federal statutory rate
 
21.00
 %
 
21.00
 %
State taxes, net of federal tax effects
 
(8.67
)%
 
 %
Change in valuation allowance
 
(67.39
)%
 
(27.65
)%
Incentive stock options
 
(1.75
)%
 
(1.05
)%
Provision to return adjustments
 
7.26
 %
 
21.24
 %
Meals and entertainment
 
0.50
 %
 
0.97
 %
AMT credit
 
 %
 
(9.83
)%
Other permanent differences
 
4.20
 %
 
(0.88
)%
Income tax (benefit)/expense
 
(44.85
)%
 
3.80
 %


The realization of our deferred income tax assets is dependent upon sufficient taxable income in future periods. In assessing whether deferred tax assets may be realized, we consider whether it is more likely than not that some portion, or all, of the deferred tax asset will be realized. We consider scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies that we can implement in making our assessment. We have net operating loss ("NOL") carryforwards of approximately $6.0 million for API expiring at varying dates through 2035.
In 2015, we performed a formal Section 382 study and determined that we do not have a limitation on our NOLs available to offset future income. As a result of the acquisition of API, the API NOL carryover and research and development credits will be subject to the Section 382 limitation.  A formal Section 382 study was prepared in 2019, and it was determined that there was no ownership changes in 2019 resulting in a limitation on NOLs, but a portion of the NOLs will expire unutilized. 
The U.S. federal statute of limitations remains open for the year 2016 and onward. We currently have no federal income tax returns under examination. U.S. state jurisdictions have statutes of limitation generally ranging from three to seven years. We currently have no state income or franchise tax returns under examination. We currently do not file tax returns in any foreign tax jurisdiction other than Canada.
As of December 31, 2019, we are no longer in a three-year cumulative loss position, which required additional analysis to be performed in order to determine the likelihood of realizing the deferred tax assets in the foreseeable future. After further analysis, it was determined that a portion of the December 31, 2019 balance of deferred tax assets will be realized. Because the NOLs carried over from API are limited under Section 382, the deferred tax asset of $1.2 million is expected to be realized over an extended period of time (with continued earnings realized ratably through 2034). The deferred tax asset related to the NOL carryovers of API Canada, Luna Analytics, Luna Nanomaterials, and Luna Quest will likely not be realized in the foreseeable future as these entities no longer have any activity. As of December 31, 2019, valuation allowances of $3.3 million were released and a tax benefit has been recognized in our consolidated statement of operations.