Note 5 - Income Taxes

12 Months Ended

Dec. 31, 2022

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,
	2022			2021			2020
Current
Federal	$	552		$	131		$	( 2,006	)
State		23			84			( 2	)
Total Current		575			215			( 2,008	)
Federal		( 959	)		( 704	)		( 13	)
State		428			333			( 326	)
Total Deferred		( 531	)		( 371	)		( 339	)
Income Tax Provision	$	44		$	( 156	)	$	( 2,347	)

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

	Year Ended December 31,
	2022			2021			2020
Federal statutory rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal benefit		12.0	%		10.4	%		4.4	%
Permanent differences		(0.4%	)		47.6	%		0.0	%
Stock based compensation		0.5	%		1.4	%		(0.4%	)
Federal R&D Credits		8.9	%		0.0	%		1.6	%
Foreign taxes, net of federal benefit		0.0	%		(10.9%	)		(2.2%	)
Difference in tax rate for carryback claim		0.0	%		0.0	%		13.4	%
Increase/(decrease) in valuation reserve		(46.2%	)		(50.5%	)		0.0	%
Effective tax rate		-4.2	%		19.0	%		37.8	%

The change in effective tax rate from 2021 to 2022 was primarily driven by the Company’s 2021 non-taxable debt forgiveness from the Paycheck Protection Plan in 2021 that was included in income for GAAP purposes partially offset by the decrease in foreign taxes in 2022. As of December 31, 2022, the Company had no federal net operating loss carryforwards. As of December 31, 2022, the Company had $1.3 million of state net operating loss carryforwards, of which $1.2 million expire at various dates between 2030 and 2040, and $0.1 million do not expire. As of December 31, 2022, the Company had no federal tax credit carryforwards and $1.4 million of California tax credit carryforwards relating to the years 2013 through 2022 which have an unlimited carryforward period. In 2022, the 12.0% state income tax effective rate primarily consisted of California research tax credits of 8.3%.

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

	As of December 31,
	2022			2021
Deferred Tax Assets
Allowance for doubtful accounts	$	21		$	21
Accrued expenses		414			129
Stock-based compensation		381			325
R&D tax credits		1,086			1,083
Operating lease		701			944
Capitalized research expenses		404			-
NOL carryforward		72			219
Gross Deferred Tax Assets		3,079			2,721
Valuation Allowance		( 895	)		( 414	)
Deferred Tax Assets After Valuation Allowance		2,184			2,307
Deferred Tax Liabilities
Excess of tax over book depreciation and amortization		( 783	)		( 1,249	)
Prepaid expenses		( 78	)		( 61	)
Operating lease		( 632	)		( 837	)
Gross Deferred Tax Liabilities		( 1,493	)		( 2,147	)
Net Deferred Tax Assets	$	691		$	160

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. The Company adopted ASU 2019-12 as of January 1, 2021, with no material impact to the Company’s consolidated financial statements.

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, 2022, and 2021, respectively.

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, 2022, 2021 or 2020 were not material.