Annual report pursuant to Section 13 and 15(d)

Income Taxes

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Income Taxes
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

Note 21 - Income Taxes

 

The domestic and foreign components of income (loss) before income taxes from continuing operations for the years ended December 31, 2019 and 2018 are as follows (in thousands):

 

    For the Years Ended
December 31,
 
    2019     2018  
Domestic   $ (32,116 )   $ (18,336 )
Foreign     (2,450 )     (1,447 )
                 
Loss from Continuing Operations before Provision for Income Taxes   $ (34,566 )   $ (19,783 )

      

The income tax provision (benefit) for the years ended December 31, 2019 and 2018 consists of the following (in thousands):

 

    For the Years Ended
December 31,
 
    2019     2018  
Foreign            
Current   $ --     $ 17  
Deferred     (844 )     (142 )
U.S. federal     --       --  
Current     --       --  
Deferred     (5,177 )     734  
State and local     --       --  
Current     --       7  
Deferred     (898 )     391  
      (6,919 )     1,007  
Change in valuation allowance     6,335       (1,007 )
                 
Income Tax Provision   $ (584 )   $ --  

 

The reconciliation between the U.S. statutory federal income tax rate and the Company's effective rate for the years ended December 31, 2019 and 2018 is as follows:

 

    For the Years Ended
December 31,
 
    2019     2018  
U.S. federal statutory rate     21.0 %     21.0 %
State income taxes, net of federal benefit     2.0       (0.2 )
Impairment of goodwill     --       (0.7 )
Impairment of net operating loss     --       (4.5 )
Incentive stock options     (0.7 )     (0.5 )
Additional Beneficial Conversion Feature     --       (0.5 )
Federal and state rate change and other     --       0.8  
US-Foreign income tax rate difference     0.4       0.4  
Other permanent items     0.1       (0.5 )
Provision to return adjustments     --       --  
Deferred rate change     --       --  
Deferred only adjustment     (2.7 )     --  
Change in valuation allowance     (18.3 )     (15.3 )
Effective Rate     1.8 %     0.0 %

 

As of December 31, 2019 and 2018, the Company's deferred tax assets consisted of the effects of temporary differences attributable to the following:

 

   

As of December 31,

 
(in 000s)   2019     2018  
Deferred Tax Asset            
Net operating loss carryovers   $ 8,918     $ 4,892  
Deferred revenue     --       --  
Stock based compensation     1,114       646  
Debt debenture     --       --  
Research credits     135       133  
Accrued compensation     36       55  
Reserves     242       191  
Intangibles     2,361       1,741  
Fixed assets     39      

--

 
Other     3.046       470  
                 
Total Deferred Tax Asset     15,891       8,128  
Less: valuation allowance     (13,902 )     (7,677 )
                 
Deferred Tax Asset, Net of Valuation Allowance   $ 1,989     $ 451  

 

   

As of December 31,

 
Deferred Tax Liabilities   2019     2018  
Intangible assets   $ (1,671 )   $ --  
Fixed assets     --       --  
Other     (53 )     (36 )
Prepaid maintenance     --       --  
Capitalized research     (352 )     (415 )
Total deferred tax liabilities     (2,076 )     (451 )
                 
Net Deferred Tax Asset (Liability)   $ (87 )   $ --  

 

The transition tax is based on total post-1986 earnings and profits which were previously deferred from U.S. income taxes. At December 31, 2019, the Company did not have any undistributed earnings of our foreign subsidiaries. As a result, no additional income or withholding taxes have been provided for. The Company does not anticipate any impacts of the global intangible low taxed income ("GILTI") and base erosion anti-abuse tax ("BEAT) and as such, the Company has not recorded any impact associated with either GILTI or BEAT. 

 

In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company's NOL carryover is subject to an annual limitation in the event of a change of control, as defined by the regulations. The Company performed an analysis to determine the annual limitation as a result of the changes in ownership that occurred during 2018 and 2019. Based on the Company's analysis, the NOL available to offset future taxable income after these ownership changes was approximately $6.2 million and $16.3 million, respectively. These NOLs, if not utilized, expire beginning in December 31, 2037.

 

As of December 31, 2019 and 2018, Inpixon Canada, which was acquired on April 18, 2014 as part of the AirPatrol Merger Agreement, had approximately $12.0 million and $10.9 million, respectively, of Canadian NOL carryovers available to offset future taxable income. These NOLs, if not utilized, begin expiring in the year 2026.

 

As of December 31, 2019, Jibestream, which was acquired on August 15, 2019, had approximately $4.3 million Canadian NOL carryovers available to offset future taxable income. These NOLs, if not utilized, begin expiring in the year 2033.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers, 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 temporary differences representing net future deductible amounts become deductible.

 

ASC 740, "Income Taxes" requires that a valuation allowance be established when it is "more likely than not" that all, or a portion of, deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets with respect to Inpixon and Inpixon Canada and has, therefore, established a full valuation allowance as of December 31, 2019 and 2018. As of December 31, 2019 and December 31, 2018, the change in valuation allowance was $6.3 million and $(1.0) million, respectively.

 

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.  ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  The Company is required to file income tax returns in the United States (federal), Canada, India, and in various state jurisdictions in the United States. Based on the Company's evaluation, it has been concluded that there are no material uncertain tax positions requiring recognition in the Company's consolidated financial statements for the years ended December 31, 2019 and 2018.

 

The Company's policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interest expense and as a component of selling, general and administrative expense, respectively.  There were no amounts accrued for interest or penalties for the years ended December 31, 2019 and 2018.  Management does not expect any material changes in its unrecognized tax benefits in the next year.

 

The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities. The Company is subject to examination by U.S. tax authorities beginning with the year ended December 31, 2015. In general, the Canadian Revenue Authority may reassess taxes four years from the date the original notice of assessment was issued. The tax years that remain open and subject to Canadian reassessment are 2015 – 2019. The tax years that remain open and subject to Indian reassessment are tax years beginning March 31, 2014.