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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

Note 13. Income Taxes

Income Taxes

The income tax provision (benefit) is as follows (in thousands):

 

 

For the Years Ended December 31,

 

 

 

2021

 

 

2020

 

Current:

 

 

 

 

 

 

U.S. federal

 

$

—

 

 

$

—

 

State and local

 

 

12

 

 

 

(2

)

Foreign

 

 

218

 

 

 

269

 

Total current provision

 

 

230

 

 

 

267

 

Deferred:

 

 

 

 

 

 

U.S. federal

 

 

(2,203

)

 

 

10

 

State and local

 

 

(76

)

 

 

(4

)

Total deferred provision (benefit)

 

 

(2,279

)

 

 

6

 

Total tax provision

 

$

(2,049

)

 

$

273

 

 

Tax Rate Reconciliation

Reconciliations of the total income tax provision tax rate to the statutory federal income tax rate of 21% for the years ended December 31, 2021 and 2020, respectively, are as follows (in thousands):

 

 

For the Years Ended December 31,

 

 

 

2021

 

 

2020

 

Income taxes at statutory rates

 

$

(2,549

)

 

$

(631

)

State income tax, net of federal benefit

 

 

(64

)

 

 

(6

)

Permanent items

 

 

86

 

 

 

(20

)

Equity based compensation

 

 

(364

)

 

 

81

 

Change in fair value of contingent consideration

 

 

428

 

 

 

—

 

Federal research credits

 

 

(313

)

 

 

(168

)

Federal return to provision

 

 

73

 

 

 

(136

)

Foreign taxes

 

 

218

 

 

 

269

 

Other

 

 

74

 

 

 

29

 

Change in federal valuation allowance

 

 

362

 

 

 

855

 

 

 

$

(2,049

)

 

$

273

 

Significant Components of Current and Deferred Taxes

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, are as follows (in thousands):

 

 

December 31,

 

 

 

2021

 

 

2020

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$

7,247

 

 

$

4,741

 

Research and AMT credits

 

 

3,365

 

 

 

2,664

 

Stock based compensation

 

 

1,360

 

 

 

733

 

Lease liability

 

 

746

 

 

 

—

 

Accrued and other

 

 

506

 

 

 

928

 

 

 

 

13,224

 

 

 

9,066

 

Less valuation allowance

 

 

(9,452

)

 

 

(8,520

)

Deferred tax assets, net of allowance

 

 

3,772

 

 

 

546

 

Deferred tax liabilities:

 

 

 

 

 

 

Fixed assets

 

 

(449

)

 

 

(344

)

Goodwill

 

 

(349

)

 

 

(260

)

Right-of-use asset

 

 

(676

)

 

 

—

 

Intangible asset

 

 

(2,407

)

 

 

—

 

Deferred tax liabilities

 

 

(3,881

)

 

 

(604

)

Total deferred tax liabilities

 

$

(109

)

 

$

(58

)

The Company has established a valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realization of such assets. The Company periodically evaluates the recoverability of the deferred tax assets. At such time it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will be reduced. The Company has recorded a valuation allowance of $9.5 million as of December 31, 2021 as it does not believe it is more likely than not that certain deferred tax assets will be realized due to the recent history of both pre-tax book income and losses, the lack of taxable income available in carryback periods or feasible tax-planning strategies, the limited existing taxable temporary differences, and the subjective nature of forecasting future taxable income into the future. The Company increased its valuation allowance by approximately $0.9 million during the year ended December 31, 2021.

At December 31, 2021 the Company had federal and state tax loss carryforwards of approximately $29.9 million, and $11.0 million, respectively. The federal loss generated post 2018 of $9.9 million will carryforward

indefinitely and be available to offset up to 80% of future taxable income each year. The remaining federal and state net operating loss carryforwards begin to expire in 2022 and 2028, respectively, if unused.

At December 31, 2021 the Company had federal and state tax credit carryforwards of approximately $1.8 million, and $1.6 million, respectively, after reduction for uncertain tax positions. The federal credits will begin to expire in 2026, if unused, and the state credits carryforwards indefinitely.

The Internal Revenue Code (IRC) Sections 382 and 383 limit annual use of NOL and research and development credit. In 2021, the Company completed an ownership change analysis pursuant to IRC Section 382 through taxable year ended December 31, 2020, in which the Company determined that the Company had undergone an ownership change on June 30, 2017. While the Company's NOLs and tax credit carryforwards generated prior to June 30, 2017 are subject to an annual limitation pursuant to Sections 382 and 383 of the Code, the NOLs are fully available by December 31, 2020 and the Company does not anticipate a go forward limitation on the Company's NOL carryforwards. The Company's use of federal and state NOLs and tax credit carryforwards could be limited further by ownership changes that occur, or may have occurred, after December 31, 2020. In addition, the ownership change analysis completed through December 31, 2020 did not include a historical change ownership analysis for NimbeLink prior to its acquisition by the Company. Ownership changes occurring for NimbeLink, prior to acquisition by the Company, could subject approximately $3 million of NimbeLink's federal NOLs to a limitation.

The following table summarizes the reconciliation of the unrecognized tax benefits activity during the years ended December 31 (in thousands):

 

 

2021

 

 

2020

 

Beginning unrecognized tax benefits

 

$

879

 

 

$

765

 

Gross increases - tax positions in prior period

 

 

178

 

 

 

36

 

Gross increases - current year tax positions

 

 

123

 

 

 

78

 

Purchase accounting

 

 

37

 

 

 

—

 

Ending unrecognized tax benefits

 

$

1,217

 

 

$

879

 

The unrecognized tax benefit amounts are reflected in the determination of the Company’s deferred tax assets. If recognized, $129,000 of these amounts would impact company’s effective tax rate. The Company does not foresee material changes to its uncertain tax benefits within the next twelve months.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company has an accrual for interest or penalties of $0.1 million on the Company’s balance sheets as of December 31, 2021 and 2020. The Company has recognized interest and/or penalties of $0 in the Statement of Operations for each of the years ended December 31, 2021 and 2020, respectively.

Due to the existence of federal and state net operating loss and credit carryovers, the Company’s tax years that remain open and subject to examination by tax jurisdiction are years 2000 and forward for federal and years 2006 and forward for the state of California.