Annual report pursuant to Section 13 and 15(d)

Income Tax

v3.19.1
Income Tax
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Tax
INCOME TAX

The domestic and foreign components of loss before income taxes from operations for the years ended December 31, 2018, 2017 and 2016 are as follows:
 
For the Years Ended December 31,
 
2018
 
2017
 
2016
 
(in thousands)
Domestic
$
29,110

 
$
17,120

 
$
1,097

Foreign
(320
)
 
(469
)
 
(744
)
 
$
28,790

 
$
16,651

 
$
353



The provision (benefit) for income tax for the years ended December 31, 2018, 2017 and 2016, consist of the following:
 
For the Years Ended December 31,
 
2018
 
2017
 
2016
 
(in thousands)
Federal:
 
 
 
 
 
Current
$
4,010

 
$

 
$

Deferred
2,231

 
7,694

 
416

 
 
 
 
 
 
State:
 
 
 
 
 
Current
1,329

 
43

 
3

Deferred
482

 
269

 
(380
)
 
 
 
 
 
 
Foreign:
 
 
 
 
 
Current

 

 

Deferred
73

 
(129
)
 
(174
)
 
 
 
 
 
 
 
8,125

 
7,877

 
(135
)
 
 
 
 
 
 
Change in valuation allowance
(73
)
 
(14,037
)
 
138

Income tax provision (benefit)
$
8,052

 
$
(6,160
)
 
$
3



The expected tax expense (benefit) based on the statutory rate is reconciled with actual tax expense (benefit) as follows:
 
For the Years Ended December 31,
 
2018
 
2017
 
2016
U.S. Federal statutory rate
21.0
 %
 
34.0
 %
 
34.0
 %
State rate, net of federal benefit
5.0
 %
 
2.8
 %
 
7.8
 %
Permanent differences:
 
 
 
 
 
Change in tax rate
 %
 
16.4
 %
 
(113.0
)%
Impact of tax reform
 %
 
(16.4
)%
 
 %
Deferred tax adjustment
0.5
 %
 
(0.3
)%
 
(19.1
)%
Stock based compensation
(0.4
)%
 
0.1
 %
 
28.9
 %
§162(m) limited compensation
1.1
 %
 
 %
 
 %
Foreign tax rate difference
 %
 
0.3
 %
 
19.3
 %
Fair value measurement of warrants
2.5
 %
 
(4.5
)%
 
 %
Other
(2.0
)%
 
(1.6
)%
 
3.0
 %
Change in valuation allowance
0.3
 %
 
(67.9
)%
 
40.0
 %
Income tax provision (benefit)
28.0
 %
 
(37.1
)%
 
0.9
 %


The approximate tax effects of temporary differences, which give rise to significant deferred tax assets and liabilities, are as follows:
 
As of December 31,
 
2018
 
2017
 
2016
 
(in thousands)
Deferred tax assets
 
 
 
 
 
Net operating losses
$
535

 
$
3,912

 
$
10,032

Stock-based compensation
736

 
572

 
949

Intangible assets
2,412

 
2,190

 
3,748

Other
340

 
115

 
77

Total deferred tax assets
4,023

 
6,789

 
14,806

Valuation allowance
(535
)
 
(462
)
 
(14,497
)
Deferred tax asset, net of valuation allowance
3,488

 
6,327

 
309

Deferred tax liability
(677
)
 
(126
)
 
(309
)
Net deferred tax assets
$
2,811

 
$
6,201

 
$



As of December 31, 2018, the Company had nil federal and state net operating losses ("NOL"). As of December 31, 2017 and 2016, the Company had carryforwards NOL of approximately $12.7 million and $26.1 million, respectively. As of December 31, 2018 and 2017, the Company had foreign NOL carryforwards of approximately $2.3 million and $2.0 million, respectively.

The use of NOL and tax credit carryfowards may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 and 383 of the U.S. Internal Revenue Code (“IRC”), and similar state provisions. The annual limitation may result in the expiration of NOL and tax credit carryforwards before they are used. The Company rolled forward its IRC Section 382 analysis from the prior year and identified a potential ownership change during 2018, however, the Company believes there is no material limitation on its ability to utilize its net operating losses and tax credits, all of which are expected to be utilized during 2018 and therefore no tax attributes are expected to carry into future years.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, carryback potential, projected future taxable income and tax planning strategies in making this assessment. Management has considered both positive and negative evidence in evaluating the need for a valuation allowance and has given more weight to the objective evidence available. At the end of 2018, the Company has three-year cumulative profit. At the end of 2018, management’s assessment is that no valuation allowance against its domestic deferred tax assets is deemed necessary. The Company’s foreign subsidiary had generated book and tax losses since its inception. Management has determined that it is not more likely than not that the foreign deferred tax assets will be realized.  As such, the Company has maintained the valuation allowance against its foreign deferred tax assets. The change in valuation allowance for the years ended December 31, 2018, 2017 and 2016, is $0.1 million, $14.0 million and $0.1 million, respectively.

On December 22, 2017, the 2017 Tax Cut and Jobs Act (the Act) was enacted into law and the new legislation contains several key tax provisions, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the estimated transition tax, re-measuring our U.S. deferred tax assets and liabilities at a 21% rate as well as reassessing the net realizability of our deferred tax assets and liabilities. The provisional amount related to the re-measurement of our deferred tax balance was estimated to be a reduction of approximately $2.8 million at December 31, 2017.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118) which allows companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Since the Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation was yet to be issued, our accounting of the transition tax and deferred tax re-measurements were incomplete as of December 31, 2017. The 2017 Federal corporate income tax return was filed in Q4 2018. The final analysis and impact of the Act is reflected in the tax provision and related tax disclosures for the year ended December 31, 2018. There were no material differences to the originally estimated $2.8 million remeasurement of deferred tax assets or transition tax liability.