Income Taxes

3 Months Ended

Mar. 31, 2021

The tax benefit is based on the estimated annual effective tax rate for the year, which includes estimated federal, state and foreign income taxes on the Company’s projected

pre-tax

income.

The benefit for income taxes and the effective income tax rates were as follows (dollars in thousands):


	Three Months Ended March 31,
	2021			2020
Benefit for income taxes	$	(143	)	$	(494	)
Effective income tax rate		(1.0	)%		(22.2	)%

The effective tax rates were lower than the statutory tax rates for the three months ended March 31, 2021 and 2020 primarily due to the Company’s full valuation allowance position against domestic deferred tax assets. The benefit for income taxes for the three months ended March 31, 2021 and 2020 included estimated foreign income taxes and estimated state taxes in jurisdictions in which the Company does not have sufficient net operating loss carryforwards.

As of March 31, 2021, the Company had a valuation allowance of approximately $37,856,000 against all net domestic deferred tax assets, for which realization cannot be considered more likely than not at this time. Management assesses the need for the valuation allowance on a quarterly basis. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. While recent positive operating results, as a result of increases in bookings, caused the Company to be in a cumulative income position as of March 31, 2021, the Company faces uncertainties in forecasting its operating results due to the continued impact of the

COVID-19

pandemic on the Company’s supply chain, certain process issues with the production of Advanced Products and the unpredictability in certain markets. This operating uncertainty also makes it difficult to predict the availability and utilization of tax benefits over the next several years. As a result, management has concluded, at this time, it is more likely than not the Company’s net domestic deferred tax assets will not be realized, and a full valuation allowance against all net domestic deferred tax assets was still warranted as of March 31, 2021. The valuation allowance against these deferred tax assets may require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance. If the positive quarterly earnings and increases in bookings continue, and the Company’s concerns about industry uncertainty and world events, including the impact of the

COVID-19

pandemic on the Company’s supply chain, and process issues with the production of Advanced Products are resolved, and the amount of tax benefits the Company is able to utilize to the point that the Company believes future taxable income can be more reliably forecasted, the Company may release all or a portion of the valuation allowance in the near-term. Certain state tax credits, though, will likely never be released by the valuation allowance. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s Consolidated Statements of Operations, the effect of which would be an increase in reported net income.

- 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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