Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.3.1.900
Income Taxes
12 Months Ended
Dec. 31, 2015
Income Tax Disclosure [Abstract]  
Income Taxes
8. Income Taxes

The following table summarizes income before income taxes for the years ended December 31 (in thousands):

 

     2015      2014  

U.S income

   $ 5,336       $ 5,670   

Non-U.S. income

     237         540   
  

 

 

    

 

 

 

Income before income taxes

   $ 5,573       $ 6,210   
  

 

 

    

 

 

 

The following table summarizes the components of the consolidated provision for income taxes for the years ended December 31 (in thousands):

 

     2015     2014  

U.S Federal income tax expense

    

Current

   $ —        $ (26

Deferred

     (1,508     (2,273
  

 

 

   

 

 

 

Total U.S. Federal income tax expense

     (1,508     (2,299

State and local income tax expense

    

Current

     (101     (68

Deferred

     (256     (315
  

 

 

   

 

 

 

Total state and local income tax expense

     (357     (383
  

 

 

   

 

 

 

Foreign income tax expense (benefit)

    

Current

     35        (171
  

 

 

   

 

 

 

Total income tax expense

   $ (1,830   $ (2,853
  

 

 

   

 

 

 

 

The following table summarizes a reconciliation of the effective income tax rate to the U.S. federal statutory rate for the years ended December 31:

 

     2015     2014  

Income tax expense at the statutory rate

     34.00     34.00

State and local income tax expense

     5.41     4.06

Foreign income tax

     (0.24 %)      2.86

Permanent differences

     0.75     2.06

Research & Development Credits

     (7.56 %)      0.00

Other adjustments

     0.46     2.96
  

 

 

   

 

 

 

Effective income tax rate

     32.82     45.94
  

 

 

   

 

 

 

The following table summarizes the temporary differences and carryforwards that give rise to deferred tax assets and liabilities as of December 31 (in thousands):

 

     2015     2014  

Deferred Federal tax assets —

    

Bad debt reserves

   $ 1,612      $ 1,618   

Stock based compensation

     636        383   

Net operating loss

     5,110        5,058   

Accrued compensation

     624        184   

Alternative minimum tax credit

     73        73   

Inventories

     52        44   

Accrued rent

     51        39   

Goodwill and intangible assets

     7,919        9,186   

Research & Development Credits

     418        —     

Other Credits

     3        —     

Other

     79        —     
  

 

 

   

 

 

 

Total deferred Federal tax assets

     16,577        16,585   
  

 

 

   

 

 

 

Deferred Federal tax liabilities —

    

Depreciation and asset basis differences

     (3,358     (2,221

Other

     (364     —     
  

 

 

   

 

 

 

Total deferred Federal tax liabilities

     (3,722     (2,221
  

 

 

   

 

 

 

Net deferred Federal tax assets

     12,855        14,364   

Net deferred state and local tax assets

     1,390        1,644   
  

 

 

   

 

 

 

Net deferred tax assets

   $ 14,245      $ 16,008   
  

 

 

   

 

 

 

The classification of net deferred income taxes as of December 31, 2015 is summarized (in thousands):

 

     Current      Long-term     Total  

Deferred tax assets

   $ 2,743       $ 16,652      $ 19,395   

Deferred tax liabilities

     —           (5,150     (5,150
  

 

 

    

 

 

   

 

 

 

Net deferred tax assets

   $ 2,743       $ 11,502      $ 14,245   
  

 

 

    

 

 

   

 

 

 

 

The classification of net deferred tax assets as of December 31, 2014 is summarized (in thousands):

 

     Current      Long-term     Total  

Deferred tax assets

   $ 2,252       $ 17,339      $ 19,591   

Deferred tax liabilities

     —           (3,583     (3,583
  

 

 

    

 

 

   

 

 

 

Net deferred income taxes

   $ 2,252       $ 13,756      $ 16,008   
  

 

 

    

 

 

   

 

 

 

As of December 31, 2015 the Company recognized a benefit of $0.4 million for research and development credits pertaining to the Company’s development of software that enables third parties to interact, initiate functions or review data on the Company’s system.

As of December 31, 2015 and 2014, the Company had federal and state net operating loss carryforward remaining of approximately $15.5 million and $15.3 million, respectively.

The Company’s deferred tax asset related to net operating losses (“NOLs”) is less than the actual NOLs available for tax return filings. The U.S. Federal NOL carryforwards include $0.3 million relating to deductions taken with respect to stock option exercises in excess of amounts recognized for financial reporting purposes for which a benefit would be recorded in APIC when realized. This portion of the NOL carryforwards is not included as a component of the Company’s deferred tax asset. Therefore, the Company did not recognize the benefit of tax deductions allowed for stock option exercises in excess of compensation expense recognized for financial reporting purposes, because the Company has NOL carryforwards available and it did not reduce income tax payable.

The U.S. Federal net operating losses can be used for a 20-year period, and if unused, will begin to expire in 2028. The state net operating losses can be used for a period of 5 to 20 years and vary by state, and if unused, begin to expire in 2016, though a substantial portion expires beyond 2017. Tax benefits of operating loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. The Company expects to be able to utilize these net operating loss carryforwards and therefore has not recorded a valuation allowance which is described in more detail below.

The Company’s realization of its deferred tax assets is dependent upon many factors, including, but not limited to, the Company’s ability to generate sufficient taxable income. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Based on historical performance, sufficient earnings history exists to support the realization of the deferred tax assets. This evidenced ability to generate sufficient taxable income is the basis for the Company’s assessment that the deferred tax assets are more likely than not to be realized.

The Company had no uncertain tax positions for the years ended December 31, 2015 and 2014.

The Company is subject to taxation for Federal and various state jurisdictions in the United States and Canada. The Federal income tax returns of the Company for the years 2012 through 2015 are subject to examination by the Internal Revenue Service. The state income tax returns and other state tax filings of the Company are subject to examination by the state taxing authorities, for various periods generally up to four years after they are filed. Canadian income tax returns of the Company for the years 2011 through 2015 are subject to examination by the Canada Revenue Agency. There are currently no tax audits ongoing.

During the fourth quarter of 2015, the Company completed an update to its analysis of past ownership (as defined under Section 382 of the Code), and as a result, the Company believes that, consistent with previously completed analyses, it has not experienced an ownership change since December 31, 2010. The Company has undertaken a definitive analysis necessary to quantify the effect of ownership change as of December 31, 2010 on the net operating loss carryforwards generated prior to December 31, 2010. Based on the analysis, the Company is subject to an annual limitation of $1.8 million on its use of remaining pre-ownership change net operating loss carryforwards of $4.7 million (and certain other pre-change tax attributes). The Company’s federal net operating loss carryforwards of approximately $15.5 million will begin to expire in various years beginning in 2028.