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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | Note 5: Income Taxes The components of loss before provision for income taxes consist of the following (in thousands):
|  | Years Ended December 31, |
(In Thousands) |  | 2021 |  |  | 2022 |
United States |  | $ | (1,173 | ) |  | $ | (7,525 | )
Foreign |  |  | (2,985 | ) |  |  | (536 | )
Loss before provision for income taxes |  | $ | (4,158 | ) |  | $ | (8,061 | )
The provision for income taxes consists of the following (in thousands):
|  | Years Ended December 31, |
(In Thousands) |  | 2021 |  | 2022 |
Current federal provision |  |  |  |  |  |  |
State |  | $ | 204 |  | $ | 58 |
Foreign |  |  | - |  |  | 39 |
Deferred provision (benefit) |  |  |  |  |  |  |
Federal |  |  | 20 |  |  | 67 |
State |  |  | 106 |  |  | 20 |
Foreign |  |  | (98 | ) |  | — |
Total income tax expense (benefit) |  | $ | 232 |  | $ | 184 |
The Company’s income tax expense (benefit) differed from the amounts computed by applying the U.S. federal statutory rate to loss before provision for income taxes as a result of the following:
| Years Ended December 31, |
(In Thousands) | 2021 |  | 2021 |  | 2022 |
| As Reported |  | As Adjusted |  |  |  |
Income tax benefit at U.S. statutory rate | $ | (873 | ) | $ | (873 | ) | $ | (1,693 | )
State taxes, net of valuation allowance |  | (448 | ) |  | 313 |  |  | 79 |
Foreign tax differential |  | (747 | ) |  | (747 | ) |  | (150 | )
Non-deductible transaction costs |  | (1 | ) |  | 2,496 |  |  | 16 |
Stock-based compensation (1) |  | 434 |  |  | 1,985 |  |  | 190 |
Gain on CARES Act loan |  | (1,089 | ) |  | (1,089 | ) |  | 32 |
Valuation allowance |  | 3,334 |  |  | (1,474 | ) |  | 1,815 |
Goodwill impairment |  | 98 |  |  | 98 |  |  | — |
Tax credits |  | (544 | ) |  | (544 | ) |  | (237 | )
Other expenses |  | 68 |  |  | 67 |  |  | 132 |
Total income tax expense (benefit) | $ | 232 |  | $ | 232 |  | $ | 184 |
(1) Includes non-deductible stock-based compensation and excess tax benefits and shortfalls from stock-based compensation. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below and reflects the 21% U.S. federal statutory rate for 2021 and 2022 (in thousands):
|  | Years Ended December 31, |
(In Thousands) |  | 2021 |  | 2021 |  | 2022 |
Deferred tax assets: |  | As Reported |  | As Adjusted |  |  |  |
Accrued liabilities not currently deductible |  | $ | 476 |  | $ | 476 |  | $ | 434 |
Intangible assets- excess of financial statement over tax amortization |  |  | 5,985 |  |  | 3,245 |  |  | 3,341 |
Stock-based compensation |  |  | 2,405 |  |  | 442 |  |  | 675 |
Federal net operating and capital losses |  |  | 35,052 |  |  | 35,052 |  |  | 35,724 |
State, local and foreign net operating and capital loss carryforwards |  |  | 3,353 |  |  | 4,552 |  |  | 5,326 |
Research & experimental tax and other credit carryforwards |  |  | 5,184 |  |  | 5,685 |  |  | 5,421 |
Lease liability |  |  | 866 |  |  | 866 |  |  | 426 |
Capitalized research and development |  |  | — |  |  | — |  |  | 1,054 |
Other |  |  | 547 |  |  | 547 |  |  | 460 |
Gross deferred tax assets |  |  | 53,868 |  |  | 50,865 |  |  | 52,861 |
Valuation allowance |  |  | (53,066 | ) |  | (49,643 | ) |  | (51,795 | )
Net deferred tax assets |  | $ | 802 |  | $ | 1,222 |  | $ | 1,066 |
Deferred tax liabilities: |  |  |  |  |  |  |  |  |  |
Intangible assets-excess of tax over financial statement amortization |  |  | (393 | ) |  | (813 | ) |  | (1,107 | )
Right-of-use lease asset |  |  | (595 | ) |  | (595 | ) |  | (192 | )
Net deferred tax liabilities |  | $ | (186 | ) | $ | (186 | ) | $ | (233 | )
In preparing our December 31, 2022 financial statements, we determined that our December 31, 2021 gross deferred tax balances related to intangible assets, stock-based compensation, state net operating losses, goodwill, and the corresponding valuation allowance were misstated by approximately $3.0 million. The net amount and impact are zero. We evaluated the materiality of the adjustment and concluded that its impact was not material on our financial statements taken as a whole and did not affect our balance sheet, statement of operations, stockholders’ equity or cash flows, for any periods presented. We have elected to present an “as reported” and “as adjusted” for the year ended December 31, 2021 in the tables above. As of December 31, 2022, the Company’s federal and state NOL carryforwards were approximately $170.1 million and $58.8 million, respectively. Of the total federal net operating losses reported, we have accumulated $47 million with an indefinite life as of December 31, 2022. The remaining federal net operating losses and the state net operating losses will begin to expire in 2027 and 2028, respectively, for income tax purposes. As of December 31, 2022, the Company’s federal research and development credit carryforwards were $6.3 million, which will start expiring in 2029. The Tax Reform Act of 1986 limits the use of NOL and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. The Company is not aware that any such change has occurred related to these specific tax attributes, or that the utilization of the carryforwards is limited such that these NOL or tax credit carryforwards will likely never be utilized. Accordingly, the Company has included these federal NOL and tax credit carryforwards in its deferred tax assets (subject to valuation allowance). The Company has recorded a deferred tax asset for stock-based compensation recorded on unexercised non-qualified stock options and certain restricted shares and restricted share units. The ultimate realization of this asset is dependent upon the fair value of the Company’s stock when the options are exercised and when restricted shares or restricted share units vest, and generation of sufficient taxable income to realize the benefit of the related tax deduction. The Tax Cuts and Jobs Act contained a provision which requires the capitalization of Section 174 costs incurred in years beginning on or after January 1, 2022. Section 174 costs are expenditures which represent research and development costs that are incident to the development or improvement of a product, process, formula, invention, computer software, or technique. This provision changes the treatment of Section 174 costs such that the expenditures are no longer allowed as an immediate deduction but rather must be capitalized and amortized. We have included the impact of this provision, which results in a deferred tax asset of approximately $1.1 million as of December 31, 2022. At December 31, 2021 and 2022, the Company recorded a valuation allowance of $49.6 million, and $51.8 million, respectively, against its federal, state, city and foreign net deferred tax assets, as it believes it is more likely than not that these benefits will not be realized. The net change in the total valuation allowance for each of the years ended December 31, 2021 and 2022 was $9.8 million and $2.2 million, respectively. The Company regularly reviews deferred tax assets to assess whether it is more likely than not that the deferred tax assets will be realized and, if necessary, establishes a valuation allowance for portions of such assets to reduce the carrying value. In assessing whether it is more likely than not that the Company’s deferred tax assets will be realized, factors considered included: historical taxable income, historical trends related to customer usage rates, projected revenues and expenses, macroeconomic conditions, issues facing the industry, existing contracts, the Company’s ability to project future results and any appreciation of its other assets. The Company incurred taxable losses from 2016 through 2022. Based on the level of historical taxable losses and the uncertainty of projections for future taxable income over the periods for which the deferred tax assets are deductible, with the exception of certain insignificant foreign deferred tax assets, the Company concluded that it is not more likely than not that the gross deferred tax assets will be realized. From time to time, various state, federal and other jurisdictional tax authorities undertake audits of the Company and its filings. In evaluating the exposure associated with various tax filing positions, the Company on occasion accrues charges for uncertain positions. Resolution of uncertain tax positions will impact the Company’s effective tax rate when settled. The Company does not have any significant interest or penalty accruals. The provision for income taxes includes the impact of contingency provisions and changes to contingencies that are considered appropriate. The following table summarizes activity related to tax contingencies from January 1, 2021 to December 31, 2022 which are recorded as an offset to deferred tax assets (in thousands):
(In Thousands) |  |  |  |
Gross tax contingencies—January 1, 2021 |  | $ | 1,365 |
Gross increases to current period tax positions |  |  | 72 |
Gross decreases to tax positions associated with prior periods |  |  | (55 | )
Gross tax contingencies—December 31, 2021 |  |  | 1,382 |
Gross increases to current period tax positions |  |  | 2 |
Gross tax contingencies—December 31, 2022 |  | $ | 1,384 |

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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