Income Taxes

12 Months Ended

Dec. 31, 2020

The components for income tax expense included in the accompanying consolidated statements of operations for the years ended December 31, 2020 and 2019 are as follows (in thousands):


	December 31, 2020		December 31, 2019
Current state income tax expense	$	45	$	38
Current foreign income tax expense	211		78
Deferred federal income tax expense	—		—
Total income tax expense	$	256	$	116

A reconciliation of income taxes computed using the 21% U.S. federal statutory rate to the amount reflected in the accompanying consolidated statement of operations for the years ended December 31, 2020 and 2019 is as follows (in thousands):


	December 31, 2020		December 31, 2019
Income tax benefit using U.S. federal statutory rate	$	1,352	$	1,397
State income tax expense	(35)		(30)
Foreign income tax expense	(210)		(78)
Foreign tax rate difference	(29)		—
Non-deductible expenses	26		(66)

Change in valuation allowance	(1,383)		(1,306)

Other	23		(33)
	$	(256)	$	(116)

The effects of temporary differences and carryforwards that give rise to deferred tax assets (liabilities) are as follows (in thousands):


	December 31, 2020		December 31, 2019
Federal net operating loss carryforward	$	12,203	$	11,468

Accrued interest to related parties, not deductible until paid	570		449

Accrued compensation	69		101
Basis of intangible assets	309		368


Valuation allowance	(6,639)		(5,256)
Total deferred tax assets	6,512		7,130

Basis of property, plant and equipment	6,000		6,821
Bad debt expense	—		—
Prepaid expenses	155		138
Basis in foreign entity	357		171

Total deferred tax liabilities	6,512		7,130
Net deferred tax liabilities	$	—	$	—

In December 2017, the U.S. congress passed the Tax Cuts and Jobs Act of 2017 (the "TCJA"). This legislation makes significant changes in U.S. tax law including a reduction in the corporate rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from 35% to 21%.

On March 27, 2020, President Trump signed into law the "Coronavirus Aid, Relief, and Economic Security Act" ("CARES ACT"). The CARES Act, among other things, includes provisions relating to net operating loss carryback periods. The Company is evaluating the impact, if any, that the CARES Act may have on the Company's future operations, financial position, and liquidity.

At December 31, 2020, the Company has net operating loss carry forwards of approximately $59.9 million which may be used to offset future taxable income. The net operating loss carryforwards includes $42.8 million of losses arising prior to December 31, 2017 that expire in 2028 through 2037. Those arising in tax years after 2017 can be carried forward indefinitely. Also, for losses arising in taxable years beginning after December 31, 2017 the operating loss deduction is limited to 80% of taxable income (determined without regard to the deduction). Since the Company has not yet generated significant taxable income, a valuation allowance has been established to fully reserve the Company's net deferred tax assets at December 31, 2020. A change in ownership eliminated substantially all net operating loss carryforwards of an acquired subsidiary at July 26, 2019.

The Company recognizes the tax benefit or obligation from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based not only on the technical merits of the tax position based on tax law, but also past administrative practices and precedents of the taxing authority. The tax benefits or obligations are recognized in our financial statements if there is a greater than 50% likelihood of the tax benefit or obligation being realized upon ultimate resolution. As of the years ended December 31, 2020 and 2019, the Company had no uncertain tax positions that required recognition.

As of December 31, 2020, the Company's tax returns for years 2016 to 2019 remain subject to examination for both federal and state filings.

- 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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