Annual report pursuant to Section 13 and 15(d)

Note 8 - Income Taxes

v3.21.1
Note 8 - Income Taxes
 12 Months Ended
Dec. 31, 2020
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
8.
         
Income Taxes
 
The following table summarizes the Company's income before income taxes for the years ended
December 31 (
in thousands):
 
   
2020
    
2019
  
U.S income
   $
6,623
     $
1,413
  
Non-U.S. income
    
920
      
111
  
Income before income taxes
   $
7,543
     $
1,524
  
 
The following table summarizes the Company's components of the consolidated benefit from (provision for) income taxes for the years ended
December 
31
(in thousands):
 
   
2020
    
2019
  
U.S Federal income tax benefit (expense)
                
Current
   $
(11
 )   $
-
  
Deferred
    
8,346
      
(104
 )
Total U.S. Federal income tax benefit (expense)
    
8,335
      
(104
 )
State and local income tax benefit (expense)
                
Current
    
(66
 )    
(29
 )
Deferred
    
1,725
      
-
  
Total state and local income tax benefit (expense)
    
1,659
      
(29
 )
Foreign income tax expense
                
Current
    
(205
 )    
(30
 )
Total income tax benefit (expense)
   $
9,789
     $
(163
 )
 
The following table summarizes activity related to the Company's valuation allowance for the years ended
December 31 (
in thousands):
 
   
2020
    
2019
  
Valuation allowance at the Beginning of Period
   $
(11,250
 )   $
(11,370
 )
Income tax expense
    
-
      
-
  
Release of valuation allowance
    
11,250
      
120
  
Valuation allowance at the End of Period
   $
-
     $
(11,250
 )
 
The following table summarizes a reconciliation of the Company's effective income tax rate to the U.S. federal statutory rate for the years ended
December 31:
 
   
2020
    
2019
  
Income tax expense at the statutory rate
    
21.0
 %    
21.0
 %
State and local income tax expense
    
5.1
 %    
2.0
 %
Foreign income tax
    
0.2
 %    
2.0
 %
Permanent differences
    
(8.4
 %)    
(5.8
 %)
Decrease in valuation allowance
    
(149.2
 %)    
(7.9
 %)
Other adjustments
    
1.5
 %    
(0.6
 %)
Effective income tax rate
    
(129.8
 %)    
10.7
 %
 
The following table summarizes the temporary differences and carryforwards that give rise to deferred tax assets and liabilities as of
December 31 (
in thousands):
 
   
2020
    
2019
  
Deferred Federal tax assets –
                
Bad debt reserves
   $
1,570
     $
1,459
  
Stock-based compensation
    
656
      
443
  
Net operating loss
    
7,337
      
7,991
  
Operating lease liabilities
    
1,014
      
1,271
  
Accrued compensation
    
757
      
451
  
Inventories
    
214
      
27
  
Goodwill and intangible assets
    
832
      
1,688
  
Research & development credits
    
533
      
533
  
Other credits
    
30
      
25
  
Other
    
54
      
194
  
Total deferred Federal tax assets
    
12,997
      
14,082
  
Less: valuation allowance
    
-
      
(9,553
 )
Net deferred Federal tax assets
    
12,997
      
4,529
  
Deferred Federal tax liabilities –
                
Depreciation and asset basis differences
    
(3,393
 )    
(3,366
 )
Right-of-use assets
    
(937
 )    
(1,204
 )
Total deferred Federal tax liabilities
    
(4,330
 )    
(4,570
 )
Net deferred Federal tax assets (liabilities)
    
8,667
      
(41
 )
Total deferred state and local tax assets (a)
    
1,300
      
1,634
  
Less: valuation allowance
    
-
      
(1,697
 )
Net deferred state and local tax assets (liabilities)
    
1,300
      
(63
 )
Net deferred tax assets (liabilities)
   $
9,967
     $
(104
 )
 
(a) at
December 31, 2020
and
2019,
this includes state and local net operating losses of
$1.2
million and
$1.4
million, respectively.
 
The Company's U.S. federal net operating loss carryforward for tax purposes was
$34.9
million at
December 31, 2020,
resulting in a federal deferred tax asset of
$7.3
million. Approximately
$31.5
million of the Company's U.S. federal net operating loss carryforwards will begin to expire in various years beginning in
2029.
$3.4
million of U.S. federal net operating loss carryforwards have an indefinite life. The Company's state net operating loss carryforward of approximately
$1.2
million is comprised of various jurisdictions. These 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
2021,
though a substantial portion expires beyond
2021.
Approximately
$0.1
million of the state net operating loss carryforwards have an indefinite life. 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 continues to monitor shifts in past ownership (as defined under Section
382
of the Code). A definitive analysis necessary to quantify the effect of an ownership change was performed on the net operating loss carryforwards generated prior to
December 31, 2019.
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
$4.5
million (and certain other pre-change tax attributes).
 
In the
fourth
quarter of
2020
it was determined that the valuation allowance against the U.S. federal and state deferred taxes is
no
longer required and the valuation allowance of
$11.2
million that existed was released. 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. Cumulative income in recent years and projected future taxable income is the basis for the Company's assessment that the deferred tax assets
no
longer require a full valuation allowance.
 
The Company had
no
uncertain tax positions for the years ended
December 
31,
2020
and
2019.
 
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
2017
through
2020
are open to examination by the Internal Revenue Service. The Company currently has an open audit with the Internal Revenue Service in relation to the Company's
2018
federal income tax return. Under examination, the Internal Revenue Service
may
redetermine the correct taxable income for a closed year (pre-
2017
) to determine either the amount of the federal net operating loss carryforward deduction reported in the open years or the amount of a federal net operating loss deduction that is absorbed in a closed year and supports the determination of the available federal net operating loss deduction for the open years under examination. 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
2016
through
2020
are subject to examination by the Canada Revenue Agency.
 
On
March 27, 2020,
the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted in response to the COVID-
19
pandemic. The CARES Act among other things, allows employers to defer the deposit and payment of the employer's share of Social Security taxes. The Company, under the CARES Act, deferred paying
$0.7
million of applicable gross payroll taxes as of
December 31, 2020,
which is included in other liabilities. The
$0.7
million balance of the deferred Social Security taxes is expected to be paid in
two
equal annual installments during the years ending
December 31, 2021
and
2022,
respectively. On
April 15, 2020,
the Company received a
$4.1
million loan under the Federal Paycheck Protection Program (“PPP”) created under the CARES Act. In response to revised eligibility guidelines announced by the U.S. Small Business Administration shortly thereafter, the Company repaid this loan in full on
May 7, 2020.