Note 5 - Income Taxes

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

5.

Income Taxes

The income tax provision consists of the following (in thousands):

	Year Ended December 31,
	2020			2019			2018
Current –
Federal	$	(2,006	)	$	1,478		$	2,117
State		(2	)		54			119
Foreign		-			348			1,122
Total Current Deferred –		(2,008	)		1,880			3,358
Federal		(13	)		(139	)		(168	)
State		(326	)		(227	)		(121	)
Total Deferred		(339	)		(366	)		(289	)
Income Tax Provision	$	(2,347	)	$	1,514		$	3,069

A reconciliation of the effective rate with the federal statutory rate is as follows:

	Year Ended December 31,
	2020			2019			2018
Federal statutory rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal benefit		4.4	%		(4.5	%)		0.0	%
Permanent differences		0.0	%		(8.1	%)		0.2	%
Stock based compensation		(0.4	%)		1.3	%		0.1	%
Federal R&D Credits		1.6	%		(4.7	%)		(1.7	%)
Foreign taxes, net of federal benefit		(2.2	%)		44.5	%		20.5	%
Difference in tax rate for carryback claim		13.4	%		0.0	%		0.0	%
Effective tax rate		37.8	%		49.5	%		40.1	%

The change in effective tax rate from

2019

to

2020

was primarily driven by the Company's carryback claim for the net loss as well as a decrease in foreign taxes. As of

December 31, 2020,

the Company had

no

federal net operating loss carryforwards since the

2020

loss will be carried back to the

2016

tax year. As of

December 31, 2020,

the Company had

$1.7

million of state net operating loss carryforwards which expire at various dates between

2030

and

2040.

As of

December 31, 2020,

the Company had

$0.1

million of federal tax credit carryforwards that expire in

2040

and there were

$1.1

million of California tax credit carryforwards relating to the years

2013

through

2020

which have an unlimited carryforward period. In

2020,

the

4.4%

state income tax effective rate primarily consisted of California research tax credits of

1.8%.

The components of the net deferred tax liabilities included in the accompanying balance sheets are as follows (in thousands):

	As of December 31,
		2020			2019
Deferred Tax Assets
Allowance for doubtful accounts	$	9		$	10
Accrued expenses		112			87
Stock-based compensation		265			195
R&D tax credits		1,005			788
Operating lease		1,130			764
PPP Loan expenses		9			-
NOL Carryforward		97			-
Total Deferred Tax Assets	$	2,627		$	1,844
Deferred Tax Liabilities
Excess of tax over book depreciation and amortization	$	(1,775	)	$	(1,696	)
Prepaid expenses		(48	)		(40	)
Operating lease		(1,015	)		(658	)
Total Deferred Tax Liabilities		(2,838	)		(2,394	)
Net Deferred Tax Liabilities	$	(211	)	$	(550	)

Income taxes are recorded in accordance with FASB ASC Topic

740,

Income Taxes (“ASC

740”

), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided, if, based upon the weight of available evidence, it is more likely than

not

that some or all of the net deferred tax assets will

not

be realized.

ASC

740

contains a

two

-step approach to recognizing and measuring uncertain tax positions (tax contingencies). The

first

step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than

not

that the position will be sustained on an audit, including resolution of related appeals or litigation processes, if any. The

second

step is to measure the tax benefit as the largest amount which is more than

50%

likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which

may

require periodic adjustments and which

may

not

accurately forecast actual outcomes. The Company had immaterial uncertain tax positions at

December 31, 2020,

and

no

uncertain tax positions at

December 31, 2019.

The Company operates within multiple taxing jurisdictions and could be subject to audit in these jurisdictions. These audits

may

involve complex issues, which

may

require an extended period of time to resolve. The Company has provided for its estimated taxes payable in the accompanying financial statements. The Company's policy is to recognize interest and penalties related to income tax matters as a general and administrative expense, when and if incurred. Interest and penalties for the years ended

December 31, 2020,

2019

or

2018

were

not

material. In

2019,

the I.R.S. completed a standard review of the Company's

2016

tax year. The tax years ended

December 31, 2017

through

December 31, 2020

remain subject to examination by all major taxing authorities.

The net (loss) income before income taxes was (

$6.2

) million and

$3.1

million for the years ended

December 31, 2020

and

2019,

respectively. Net loss before income taxes in Brazil was immaterial and

$1.1

million for the years ended

December 31, 2020

and

2019,

respectively. The pre-tax loss in Brazil in

2020

was a result of having

no

sales conducted through the Company's Brazilian subsidiary and tax expense was incurred with the repatriation of cash from Brazil to the United States.