Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.21.1
Income Taxes
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company reported a loss before income taxes consisting of the following (in thousands):
  Years Ended December 31,
  2020 2019
Domestic $ (12,134) $ (12,063)
Foreign (24,932) (13,406)
Loss before income taxes $ (37,066) $ (25,469)

The components of the provision for income taxes are as follows (in thousands):
  Years Ended December 31,
  2020 2019
Current:
Federal $ —  $ — 
State —  — 
Foreign 164  — 
Total current 164  — 
Deferred:
Federal —  — 
State —  — 
Foreign —  — 
Total deferred —  — 
Provision for income taxes $ 164  $ — 
The reconciliation of the federal statutory rate to the Company’s effective tax rate is as follows:
2020 2019
Federal income tax rate 21.0  % 21.0  %
Foreign rate differential 1.9  1.9 
State tax, net of federal benefit 1.9  2.6 
US tax on foreign income —  (1.2)
Share-based awards compensation (3.8) (2.5)
Permanent items (2.4) (1.0)
Other (0.4) 0.8 
Rate change - trade tax NOL —  (6.4)
Change in valuation allowance (18.7) (15.2)
Effective income tax rate (0.5) % —  %
The components of deferred tax assets and liabilities related to net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income taxes purposes were as follows (in thousands):
  Years Ended December 31,
  2020 2019
Deferred tax assets:
Net operating loss carryforwards $ 39,175  $ 30,455 
Share-based awards compensation 2,913  2,705 
Accrued expenses 230  328 
Depreciation and other 297  53 
Unrealized foreign currency 771  90 
Lease liability 4,582  4,378 
Total deferred tax assets 47,968  38,009 
Deferred tax liabilities:
Right-of-use asset (4,235) (4,043)
Total deferred tax liabilities (4,235) (4,043)
Less: valuation allowance: (43,733) (33,966)
Net deferred tax asset $ —  $ — 

The Company operates in multiple jurisdictions. Accordingly, the Company files U.S. federal and state income tax returns as well as returns in multiple foreign jurisdictions. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all 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. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax-planning strategies in making this assessment. Management believes it is more likely than not that the results of future operations will not generate sufficient taxable income in the United States or in its foreign jurisdictions to realize the full benefits of its deferred tax assets. As of December 31, 2020, the Company continues to maintain a full valuation allowance against all net deferred tax assets.
The cumulative amount of earnings of our foreign subsidiaries are expected to be permanently invested in the foreign subsidiaries. Deferred taxes have not been provided on the excess of book basis over tax basis, or the excess tax basis over book basis in the shares of our foreign subsidiaries because these basis differences are not expected to reverse in the foreseeable future and are essentially permanent in duration. Our intention is to reinvest the earnings of the foreign subsidiaries indefinitely.
The increase in the valuation allowance of deferred tax assets of $9.8 million was primarily a result of the operating losses generated in current tax year.
As of December 31, 2020, the Company had net operating loss carryforwards for U.S. federal income tax purposes of $27.3 million and net operating loss carryforwards for state income tax purposes of $33.2 million. Federal tax loss carryforwards that were created prior to December 31, 2017 expire through 2037 and federal losses created after that date do not expire. State loss carryforwards expire starting in 2035. In the United States, utilization of the NOL carryforwards may be subject to a substantial annual limitation under Section 382 of the Code and similar state provisions due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company has not currently completed a study to assess whether an ownership change has occurred, or whether there have been multiple ownership changes since the acquisition of the U.S. entity in 2014. Since the Company has incurred net operating losses since inception, it has never been subject to a revenue agent review. The Company is currently open to examination under the statute of limitations by the Internal Revenue Service and state jurisdictions for the tax years ended 2016 through 2019. Carryforward tax attributes generated in years past may still be adjusted upon future examination if they have or will be used in a future period. The Company is currently under examination in Germany for 2014 through 2017; however, the Company is not under examination by the Internal Revenue Service or any other jurisdictions for any tax years.
As of December 31, 2020, the Company had German corporate income tax and trade tax net operating loss carryforwards of approximately $116.6 million and $115.1 million respectively. Under current German laws, tax loss carryforwards may only be used to offset any relevant later assessment period (calendar year) of $1.2 million plus 60% of the exceeding taxable income and trade profit of such period and do not expire. In addition, certain transactions, including transfers of shares or interest in the loss holding entity, may result in the partial or total forfeiture of tax losses existing at that date. Partial or total forfeiture of tax losses may further occur in corporate reorganizations of the loss holding entity.
The Company accounts for uncertain tax positions pursuant to ASC 740, Income Taxes, which prescribes a recognition threshold and measurement process for financial statement recognition of uncertain tax positions taken or expected to be taken in a tax return. If the tax position meets this threshold, the benefit to be recognized is measured at the largest amount of benefit that is more likely than not (determined by cumulative probability) of being realized upon ultimate settlement with the taxing authority. The Company recorded an uncertain tax position related to a prior year position, that if successfully challenged by tax authorities could result in the loss of certain tax attributes. The balance of uncertain tax positions will remain until such time that settlement is reached with the relevant tax authorities or should the statute of limitations expire. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. No interest and penalties related to uncertain tax positions were accrued at December 31, 2020 and December 31, 2019.
The following table sets forth a reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding the impact of interest and penalties, for the years ended December 31, 2020 and 2019 (in thousands):
Unrecognized tax benefits at December 31, 2019 $ 6,032 
Currency translation adjustment 103 
Unrecognized tax benefits at December 31, 2020 $ 6,135 
The Company does not expect unrecognized tax benefits to change significantly over the next 12 months. The full amount of unrecognized tax benefits would impact the effective rate, subject to valuation allowance considerations, if recognized.