Note 11 - Income Taxes

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

( 11 )   INCOME TAXES

We are subject to Federal and certain state income taxes. In addition, we are taxed in certain foreign countries.

Earnings (loss) before income taxes was as follows:

	Years Ended December 31,
	2020			2019
Domestic	$	(2,017	)	$	1,804
Foreign		786			800
Total	$	(1,231	)	$	2,604

Income tax expense (benefit) was as follows:

	Years Ended December 31,
	2020			2019
Current
Domestic – Federal	$	(182	)	$	510
Domestic – state		53			101
Foreign		135			97
Total	$	6		$	708
Deferred
Domestic – Federal	$	(299	)	$	(413	)
Domestic – state		(7	)		(13	)
Foreign		(36	)		-
Total		(342	)		(426	)
Income tax expense	$	(336	)	$	282

Deferred income taxes reflect the net tax effect of net operating loss and tax credit carryforwards as well as temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following is a summary of the significant components of our deferred tax assets and liabilities as of

December 31, 2020

and

2019:

	December 31,
	2020			2019
Deferred tax assets:
Operating lease liabilities	$	1,601		$	1,123
Inventories		321			247
Accrued vacation pay and stock-based compensation		252			279
Net operating loss (state and foreign)		241			280
Allowance for doubtful accounts		44			44
Accrued warranty		13			19
Acquisition costs		10			12
Tax credit carryforwards		5			112
Other		71			13
Total		2,558			2,129
Valuation allowance		(169	)		(234	)
Deferred tax assets		2,389			1,895
Deferred tax liabilities:
Net intangible assets		(2,697	)		(2,923	)
Right of use assets		(1,400	)		(1,066	)
Depreciation of property and equipment		(214	)		(169	)
Deferred tax liabilities		(4,311	)		(4,158	)
Net deferred tax liabilities	$	(1,922	)	$	(2,263	)

The net change in the valuation allowance for the years ended

December 31, 2020

and

2019

was a decrease of

$65

and

$7,

respectively. In assessing the ability to realize the deferred tax assets, we consider 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 periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In order to fully realize the total deferred tax assets, we will need to generate future taxable income prior to the expiration of net operating loss and tax credit carryforwards which expire in various years through

2040.

 

An analysis of the effective tax rate for the years ended

December 31, 2020

and

2019

and a reconciliation from the expected statutory rate of

21%

is as follows:

	Years Ended December 31,
	2020			2019
Expected income tax expense (benefit) at U.S. statutory rate	$	(259	)	$	547
Increase (decrease) in tax from:
Dividend from foreign subsidiaries		83			97
NOL carryforwards utilized		64			32
Restricted stock compensation		62			114
Global intangible low taxed income		35			30
Nondeductible expenses		8			4
Current year tax credits (foreign and research)		(82	)		(234	)
Domestic tax benefit, net of Federal benefit		(68	)		(184	)
Changes in valuation allowance		(65	)		(7	)
Foreign income tax rate differences		(34	)		(51	)
Section 250 foreign derived intangible income deduction		(9	)		(145	)
Other		(71	)		79
Income tax expense (benefit)	$	(336	)	$	282

In accounting for income taxes, we follow the guidance in ASC Topic

740

(Income Taxes) regarding the recognition and measurement of uncertain tax positions in our financial statements. Recognition involves a determination of whether it is more likely than

not

that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information. Our policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. As of

December 31, 2020

and

2019,

we did

not

have an accrual for uncertain tax positions.

We file U.S. income tax returns and multiple state and foreign income tax returns. With few exceptions, the U.S. and state income tax returns filed for the tax years ended

December 31, 2017

and thereafter are subject to examination by the relevant taxing authorities.