Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

9. INCOME TAXES

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”) which, among other provisions, reduced the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. The SEC issued guidance, Staff Accounting Bulletin 118, on accounting for the tax effects of the Act. The guidance allowed the Company to record provisional amounts for those impacts, with the requirement that the accounting be completed in a period not to exceed one year from the date of enactment. The Company has completed its accounting for the tax effects of enactment of the Act. The deemed inclusion from the repatriation tax increased from $3.9 million at the time of provision to $5.0 million at the time the calculation was finalized for the tax return. The increase of the inclusion related primarily to the refinement of Malaysia earnings and profits. As the Company is in a full valuation allowance position, an equal benefit adjustment was recorded for the impact of the increase of the deemed repatriation tax.

Components of income before income taxes and the income tax provision are as follows:

Income (loss) before income taxes

	Year ended December 31,
	2020			2019
	(in thousands)
U.S.	$	(3,060	)	$	(1,142	)
Foreign		2,018			17
Total	$	(1,050	)	$	(1,125	)

Income taxes

	Year ended December 31,
	2020		2019
	(in thousands)
Current
U.S.	$	—	$	—
State		—		—
Foreign		13		22
Total current income tax expense		13		22
Deferred
U.S.		—		—
State		—		—
Foreign		—		—
Total deferred income tax expense (benefit)		—		—
Total income tax expense (benefit)	$	13	$	22

The reconciliation of income tax computed at the federal statutory rate to income before taxes is as follows:

	Year ended December 31,
	2020			2019
U.S. federal statutory rate		(21.0	)%		(21.0	)%
State taxes net of federal benefit		(18.2	)		(7.6	)
Foreign rate differential and transactional tax		5.9			0.1
Tax credits		—			—
Valuation allowance		33.3			28.5
Other		1			2.0
		1.0	%		2.0	%

Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. 

Significant components of the Company’s net deferred income taxes are as follows at December 31:

	2020			2019
	(in thousands)
Deferred tax assets:
Allowance for doubtful accounts	$	1		$	11
Inventory reserves		3,096			3,185
Consumables excess reserve		167			169
Accrued liabilities		81			52
Warrant interest expense		195			196
Stock compensation expense		789			789
State net operating loss		14,476			15,010
Net operating loss carryforward		41,105			40,437
Tax credits		710			740
Depreciation		1,000			1,329
Valuation allowance		(61,556	)		(61,869	)
Total deferred tax assets		64			49
Deferred tax liability:
Prepaid expenses		(64	)		(49	)
Net deferred tax liability	$	—		$	—

In February 2018, the FASB issued ASU No. 2018-02 (“ASU 2018-02), Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Comprehensive Income. The new guidance allows companies to reclassify stranded tax effects resulting from the Tax Act, from accumulated other comprehensive income to retained earnings. The guidance also requires certain new disclosures regardless of the election. Early adoption is permitted. The Company’s adoption of ASU 2018-02 did not have a material impact on its consolidated financial statements.

The Company adopted the guidance in ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent in the balance sheet. As a result, each jurisdiction has one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that only permits offsetting within a jurisdiction. Companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The change in accounting principle did not have an impact on the Company’s results of operations, cash flows or stockholders’ equity. 

At December 31, 2020, we had separate Federal, Illinois and Indiana NOL carryforwards of $191.3 million, $196.0 million and $322,000, respectively. The Federal and Illinois NOLs began to expire in 2021 and the Indiana NOL will begin to expire in 2039. With the adoption of ASU 2016-09 in 2017, we recorded a deferred tax asset related to $26.4 million of unrecorded Federal and State NOLs attributable to stock option exercises. NOLs attributable to the stock option exercise were fully offset by the valuation allowance (as described above). We have recorded an uncertain tax position of $2.6 million that further reduces the net operating loss deferred tax assets reported in the financial statements. In addition, at December 31, 2020, we had Federal and Illinois research and development credits and Illinois investment tax credit of $662,000, $51,000 and $370, respectively. The Illinois credits expire in 2021.

The Company completed an analysis of the utilization of NOLs subject to limits based upon certain ownership changes as of December 31, 2020. The results of this analysis indicated no ownership change limiting the utilization of net operating losses and tax credits.

The Company prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. At December 31, 2020 and 2019, the Company had $1.1 million of unrecognized tax benefits taken or expected to be taken in a tax return that have been recorded on the Company’s financial statements as an offset to the valuation allowance related to tax positions taken in 2012. It is not reasonably possible that the amount will change in the next twelve months. There were no material changes to prior year or current year positions taken during the year ended December 31, 2020.

There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2020 and 2019.

The Company files income tax returns in the United States federal jurisdiction and in a state jurisdiction. During 2009, the Company began foreign operations in Malaysia and is subject to local income taxes in that jurisdiction. The Company’s Malaysia tax returns for the periods ended December 31, 2010 through 2012 have been audited by the Malaysia Inland Revenue Board with no changes made to the taxable income for those years. All other tax years in Malaysia are open to examination by tax authorities.

The Company’s federal tax returns for the periods ended December 31, 2010, 2008 and 2007 have been audited by the Internal Revenue Service (IRS) with no changes made to the Company’s taxable losses for those years. The Company’s state tax returns for the periods ended December 31, 2009 through 2012 have been audited by the Illinois Department of Revenue with no changes made to the Company’s taxable losses for those years. Due to the existence of NOL carryforwards, tax years ended December 31, 2001 through 2006, 2008, 2009 and 2011 through 2019 are open to examination by tax authorities for Federal purposes. Due to NOL carryforwards at the State level, tax years ended 2008, 2009 and 2012 through 2019 are open to examination by state tax authorities. Tax years 2013 through 2019 are open to examination by the Malaysia Inland Revenue Board.

Due to the closing of the Rubicon Malaysia operations, the Company no longer considers the undistributed earnings of Rubicon Malaysia to be indefinitely reinvested. Upon liquidation of Rubicon Malaysia, it is anticipated any cash left after the liquidation will be brought back to the U.S. via a payment of principal towards the intercompany loan. A withholding tax may be payable to the Malaysian government on the interest portion of the loan. At December 31, 2020 and 2019, the Company accrued the withholding tax on the interest balance of the loan in the amount of $13,000 and $22,000, respectively, which represents the incremental tax.