Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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

The income tax expense (benefit) attributable to our loss before income taxes consisted of the following:

(In Thousands)
Years Ended December 31,
 
2018
 
2017
Current Taxes
 
 
 
Federal
$
—

 
$
—

State
—

 
—

 
—

 
—

Deferred Taxes
 
 
 
Federal
(587
)
 
1,278

State
(651
)
 
(686
)
Increase (decrease) in valuation allowance
1,714

 
(742
)
 
476

 
(150
)
 
$
476


$
(150
)

 

A reconciliation of the federal income tax statutory rate and the Company’s effective tax rate is as follows:

(In Thousands)
Years Ended December 31,
 
2018
 
2017
Tax Rate Reconciliation
Percent
 
Amount
 
Percent
 
Amount
Federal income tax benefit at U.S. statutory rate
21.0
 %
 
$
(817
)
 
34.0
 %
 
$
(1,760
)
State taxes, net of federal benefit
13.2
 %
 
(515
)
 
8.7
 %
 
(452
)
Change in valuation allowance, exclusive of Tax Reform impact
(44.0
)%
 
1,714

 
(57.5
)%
 
2,979

Effect of Tax Reform on net deferred taxes
—
 %
 
—

 
17.2
 %
 
(890
)
Permanent differences
(6.3
)%
 
247

 
(1.7
)%
 
91

Credits
3.7
 %
 
(146
)
 
2.2
 %
 
(116
)
Other
0.2
 %
 
(7
)
 
—
 %
 
(2
)
 
(12.2
)%
 
$
476

 
2.9
 %
 
$
(150
)

 
Our deferred tax assets (liabilities) consisted of the following:
(In Thousands)
December 31,
 
2018
 
2017
Deferred Tax Assets
 
 
 
Deferred compensation
$
744

 
$
438

Intangible assets and amortization
4,023

 
4,415

Net operating loss carry-forwards
6,210

 
4,505

Accrued expenses
975

 
772

Allowance for doubtful accounts
22

 
24

Credits
481

 
336

Common stock warrant liability
69

 
541

Interest valuation
40

 
—

Interest limitation
1,362

 
—

Charitable contribution carry-forward
97

 
72

Valuation allowance
(10,725
)
 
(9,011
)
 
3,298

 
2,092

Deferred tax liabilities:
 
 
 

Depreciation of fixed assets
(1,939
)
 
(910
)
Amortization of indefinite-lived intangibles
(2,232
)
 
(1,757
)
Prepaid expenses
(710
)
 
(651
)
Effect of state taxes on future federal returns
(629
)
 
(505
)
Other
(20
)
 
(26
)
  
(5,530
)
 
(3,849
)
 
$
(2,232
)
 
$
(1,757
)

 
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code that affect 2018, including bonus depreciation that allows for full expensing of qualified property purchases.
The Tax Act also established new tax laws that affect 2018, including, but not limited to, (1) reduction of the U.S. federal corporate tax rate from 35% to 21%; (2) eliminated the corporate alternative minimum tax (“AMT”); (3) limited the deductible interest expense; (4) limited the deductibility of certain executive compensation; and (5) limited the use of net operating losses (“NOLs”) generated after December 31, 2017, to 80% of taxable income.

As of December 31, 2018, we had federal net operating loss carryforward totaling $19.2 million and state tax carryforwards of $36.5 million. Regarding the federal net operating loss carryforward, $14.0 million can be carried forward 20 years and will begin to expire in 2035; the remaining amount can be carried forward indefinitely. Regarding the state tax carryforwards, $35.6 million can be carried forward 20 years and will begin to expire in 2035; the remaining amount can be carried forward indefinitely. We also have general business credits of $0.5 million which begin to expire in 2035.

Intangible asset impairment charges recorded in prior years resulted in a significant amount of deferred tax assets. In assessing the realizability of the Company’s deferred tax assets, we considered whether it is “more likely than not” that some portion or all of the deferred tax assets will not 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. We considered the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. We evaluated both positive and negative evidence in determining the need for a valuation allowance. We continue to assess the realizability of deferred tax assets and have concluded that we have not met the “more likely than not” threshold. As of December 31, 2018, we continue to provide a valuation allowance against our remaining deferred tax assets after being utilized by deferred tax liabilities for all jurisdictions. The valuation reserve against deferred tax assets has no effect on the actual taxes paid or owed by the Company.

As of December 31, 2018 and 2017, we had $2.2 million and $1.8 million, respectively, of deferred tax liabilities relating to goodwill and other indefinite-lived intangibles for which the timing of the reversal is not determinable and, therefore, does not assure the realization of deferred tax assets or reduce the need for a valuation allowance.

The Company’s utilization of net operating loss (NOL) and the general business tax credit carryforwards may be subject to an annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986 (IRC), and similar state provisions due to ownership changes that may have occurred or that could occur in the future. These ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Sections 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. While the Company has not completed an IRC Section 382/383 analysis to determine if there are any annual limitations on the utilization of NOLs and tax credit carryforwards, the Company does not believe that there have been greater than 50% ownership change in the last three years that would prohibit the Company from utilizing all of their tax attributes.

As of December 31, 2018, the Company is subject to U.S. federal income tax examinations for the tax years 2015 through 2018. In addition, the Company is subject to state and local income tax examinations for various tax years in the taxing jurisdictions in which the Company operates.