Note 8 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 8. INCOME TAXES

In December 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law. The CAA included additional funding through tax credits as part of its economic package for 2021. We evaluated these items in its tax computation as of December 31, 2020 and determined that the items do not have a material impact on our financial statements as of December 31, 2020. Additionally, as part of the Paycheck Protection Program (“PPP”) established by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), we received a PPP loan on April 15, 2020. The full amount of the loan and accrued interest were forgiven on November 3, 2021. This extinguishment of debt income is recorded in other income (expense) on the consolidated statements of operations and other comprehensive income for the year ended December 31, 2021. The PPP loan forgiveness will be treated as tax-exempt income due to the provisions in the CAA.

The income tax expense for the years ended December 31, 2022 and 2021 consists of the following:

	2022		2021
Current taxes - Federal	$	855	$	401
Current taxes - State		55		17
Current taxes - Foreign		557		441
Income tax expense	$	1,467	$	859

The statutory rate reconciliation for the years ended December 31, 2022 and 2021 is as follows:

	2022			2021
Statutory Rate	$	572		$	1,606
State Income Tax		41			14
Effect of foreign operations		71			110
Change in State Deferred Rate		29			(39	)
Valuation Allowance		587			472
PPP Loan Forgiveness		-			(1,276	)
US Permanent differences		(28	)		3
Federal Tax Credits		(272	)		(37	)
Global Intangible Low-Taxed Income Effect		301			391
Return to provision - credits, perm diffs		9			(481	)
Withholding Tax		122			-
IRS Payable		17			121
Other		18			(25	)
	$	1,467		$	859

Income and loss from operations before income taxes was derived from the following sources:

	2022		2021
Domestic	$	990	$	6,072
Foreign		2,487		1,941
	$	3,477	$	8,013

Deferred tax (liabilities) assets at December 31, 2022 and 2021, consist of the following:

	2022			2021
Deferred Tax
Allowance for uncollectable accounts	$	81		$	80
Inventories reserve		263			303
Accrued vacation		127			135
Accrued bonus		462			274
Stock-based compensation and equity appreciation rights		159			135
Other Accruals		548			547
Lease Accounting ASC 842 Lease Liability		1,351			1,555
Capitalized Research Expenses		318			-
Net operating loss carryforwards		-			101
Tax credit carryforwards		156			162
Unrealized Foreign Currency Gain		20			22
Intangibles		515			569
COGS Rev Rec Adjustment		1,864			1,776
COGS Offset Adjustment		(1,875	)		(1,807	)
Other		235			10
Total		4,224			3,862
Valuation allowance		(2,563	)		(1,976	)
Deferred tax assets		1,661			1,886
Accumulated Other Comprehensive Income		(56	)		(297	)
Lease Accounting ASC 842 Lease Asset		(1,301	)		(1,518	)
Prepaid Expenses		(143	)		-
Property and equipment		(161	)		(71	)
Deferred tax liabilities		(1,661	)		(1,886	)
Net deferred tax assets	$	-		$	-

We currently have significant deferred tax assets as a result of temporary differences between taxable income on our tax returns and U.S. GAAP income. A deferred tax asset generally represents future tax benefits to be received when temporary differences previously reported in our financial statements become deductible for tax purposes. We assess the realizability of our deferred tax assets and the need for a valuation allowance based on guidance provided in current financial accounting standards.

Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with loss carry forwards not expiring unused and tax planning alternatives.

After considering all available evidence, both positive and negative, we have concluded that a valuation allowance is needed for all our United States based deferred tax assets due to the history of operating losses sustained in the past three years.

At December 31, 2022, for U.S. state purposes, we have Minnesota R&D credit carry forwards of $172, which begin to expire in 2027.

The tax effects from uncertain tax positions can be recognized in our consolidated financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The following tables set forth changes in our total gross unrecognized tax benefit liabilities, excluding accrued interest, for the years ended December 31, 2022 and 2021 (in thousands):

Balance at December 31, 2021	$	50
Tax Positions - Additions		-
Tax Positions - Reductions		-
Balance at December 31, 2022	$	50

Our policy is to accrue interest related to potential underpayment of income taxes within the provision for income taxes. The liability for accrued interest as of December 31, 2022 and 2021 was not significant. Interest is computed on the difference between our uncertain tax benefit positions and the amount deducted or expected to be deducted in our tax returns.

We are subject to income taxes in the U.S. federal jurisdiction and various state jurisdictions. The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. As of December 31, 2022, our 2018 IRS audit was finalized.