Income Taxes

12 Months Ended

Dec. 31, 2020

The following table sets forth pretax book loss (in thousands):


	Year Ended December 31,
	2020		2019
United States	$	(7,570)	$	(7,882)
Foreign	252		121
Total	$	(7,318)	$	(7,761)

The following table sets forth income before taxes and the income tax expense for the years ended December 31, 2020 and 2019 (in thousands):


	Year Ended December 31,
	2020		2019
Current:
Federal	$	—	$	—
Foreign	53		—
State	50		—
	103		—

Deferred:
Federal	—		—
Foreign	—		—
State	—		—
	—		—
Income tax expense	$	103	$	—

Our effective tax rate differs from the statutory federal tax rate for the years ended December 31, 2020 and 2019 as shown in the following table (in thousands):


	Year Ended December 31,
	2020		2019
U.S. federal income taxes at the statutory rate	$	(1,533)	$	(1,630)
State taxes, net of federal effects	(122)		(130)

UK Anti-Hybrid expense addback	289		397

Transaction costs	—		74
Goodwill impairment	114		473


Section 382 Limitation	—		(7,448)
Adjustment to NOL Benefit	4,640		—
NOL Carryforward Adjustment for Expired NOLs	84		—
Stock Compensation Plan Adjustments	272		—
Change in state apportionment rate	(350)		(406)
Change in valuation allowance	(3,868)		8,869
Research and development credit	546		(136)

Other	31		(63)
Income tax expense	$	103	$	—

The tax effect of the temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2020 and 2019 is presented below (in thousands):


	December 31,
	2020		2019
Deferred tax assets (liabilities):
Tax benefit of operating loss carry forward - Federal	$	23,184	$	22,793
Tax benefit of operating loss carry forward - State	5,548		10,122

Accrued expenses	141		83
Deferred revenue	417		522

Stock-based compensation	396		671
Fixed assets	329		320
Goodwill	167		236
Inventory	47		(61)
Intangible amortization	(2,285)		(3,287)


R&D credit	2,154		2,700
Texas margin tax temporary credit	159		186
Other	285		125
Total deferred tax asset, net	$	30,542	$	34,410

Valuation allowance	(30,542)		(34,410)
Net deferred tax liability	$	—	$	—

The ending balances of the deferred tax asset have been fully reserved, reflecting the uncertainties as to realizability evidenced by the Company’s historical results. The change in valuation allowance for the year ended December 31, 2020 is an decrease of $4,005,000 principally due to the reduction of NOLs due to Section 382 limitations. The change in valuation allowance for the year ended December 31, 2019 was an increase of $25,040,000.

We and our subsidiary file federal and state tax returns on a consolidated basis. On October 1, 2019 Oblong, Inc. acquired the stock of Oblong Industries Inc. that resulted in Oblong Industries Inc.'s shareholders now owning 75% of Oblong, Inc. Therefore, an “ownership change” occurred on this date (as defined under Section 382 of the Internal Revenue Code of 1986, as

amended), which places an annual limitation on the utilization of the net operating loss (“NOL”) carryforwards accumulated before the ownership change. If additional ownership changes occur in the future, the use of the net operating loss carryforwards could be subject to further limitation.

As a result of this annual limitation and the limited carryforward life of the accumulated NOLs, we determined that the ownership change resulted in the permanent loss of approximately $30,880,000 of tax NOL carryforwards. At December 31, 2019, we had federal net operating loss carryforwards of $108,497,000 available to offset future federal taxable income which expire in various amounts from 2020 through 2037. At December 31, 2020, we had federal net operating loss carryforwards of $110,401,000 available to offset future federal taxable income which expire in various amounts from 2020 through 2037. Of this amount, 5,928,000 is subject to annual Section 382 limitations. As of December 31, 2020 and 2019, the Company also has various state net operating loss carryforwards of $94,223,000 and $141,210,000, respectively. The determination of the state net operating loss carryforwards is dependent upon apportionment percentages and state laws that can change, from year to year and impact the amount of such carryforwards.

There were no significant matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return, in accordance with ASC Topic 740 “Income Taxes” (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements, that have been recorded on the Company’s consolidated financial statements for the years ended December 31, 2020 and 2019. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months.

Additionally, ASC 740 provides guidance on the recognition of interest and penalties related to unrecognized tax benefits. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2020 and 2019.

The federal and state tax returns for the 2017 and subsequent years are currently open to examination.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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