Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.4
Income Taxes
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes
13. Income Taxes
The Company has temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their respective income tax basis, as measured by enacted state and federal rates as follows:
December 31, 2020 2019 2018
Deferred tax assets:
Net operating loss carryforwards $ 42,317  $ 36,250  $ 30,588 
Inventory write down 397  317  273 
Depreciation —  136  117 
Amortization —  —  — 
Interest limitation 115  —  336 
Allowance for doubtful accounts 106  274  285 
Lease liability 5,551  837  — 
Stock-based compensation 3,218  3,140  2,335 
Total deferred tax assets 51,704  40,954  33,934 
Deferred tax liabilities:
Depreciation (1,145) —  — 
Amortization (34) (206) (43)
Right-of-use asset (4,004) (809) — 
Contract liabilities (4) (7) (15)
Net deferred tax assets 46,517  39,932  33,876 
Valuation allowance $ (46,517) $ (39,932) $ (33,876)
The difference between the financial statement income tax and the income tax benefit using statutory rates is primarily due to the increase in the valuation allowance.
The Company’s effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2020 and 2019:
Year Ended December 31,
2020 2019
Federal tax rate 21.0  % 21.0  %
State Taxes - Net of Federal Benefit 7.3  4.1 
Permanent items and other deductions (0.6) (4.3)
Valuation allowance (27.7) (20.8)
Effective income tax rate —  % —  %
As of December 31, 2020 and 2019, management assessed the realizability of deferred tax assets. Management evaluated the need for an amount of any valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, Income Taxes, wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the Company’s deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more likely than not (a probability
level of more than 50%) that the Company may not realize the benefit of its deferred tax assets. In assessing the realization of the Company’s deferred tax assets, the Company considers all available evidence, both positive and negative.
In concluding on the evaluation, management placed significant emphasis on guidance in ASC 740, which states that “a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome.” Based upon available evidence, it was concluded on a more-likely-than-not basis that all deferred tax assets were not realizable as of December 31, 2020. The valuation allowance increased by $6,585 and $6,056 during 2020 and 2019, respectively, primarily as a result of current year increase in the net operating loss carry forward. During 2018, the valuation allowance decreased by $5,519, primarily due to the remeasurement of the Company’s deferred tax assets and liabilities as a result of the Tax Reform enacted on December 22, 2017.
As of December 31, 2020, the Company had tax-effected net operating loss carry forwards of approximately $42,317 to offset future taxable income which expire in various years through 2040. Federal net operating losses incurred in tax years beginning on or after January 1, 2018 are carried forward indefinitely. A portion of the net operating loss carry forwards may expire due to limitations imposed by section 382 of the Internal Revenue Code.
The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. In the normal course of business the Company is subject to examination by taxing authorities throughout the country. These audits could include examining the timing and amount of deductions, the allocation of income among various tax jurisdictions and compliance with federal, state and local laws. The Company’s tax years since 2017 remain subject to examination by federal, state and foreign tax authorities.
The Company adopted Accounting Standards Codification (“ASC”) Topic 842 – Leases, on January 1, 2019. Under Topic 842, the Company is required to recognize the assets and liabilities that arise from most operating leases on the balance sheet. Upon adoption, no change in retained earnings was recorded related to income taxes as the Company maintains a full valuation allowance. As of the implementation date, an adjustment of $951 was recorded as a deferred tax liability and an adjustment of $961 was recorded as a deferred tax asset. See above for more information about the non-income tax impact of the adoption of the new leasing standard.
Legislation enacted in 2018, informally titled the Tax Cuts and Jobs Act of 2017, subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI in the year the tax is incurred.
The Company had no income tax expense or income tax benefit for 2018, 2019 and 2020 due to incurrence of net operating losses. The Company does not believe there are any additional tax refund opportunities currently available.