Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

12. Income Taxes

The components of income before income taxes are as follows (in thousands):

	Year Ended
	December 31,
	2023		2022
Domestic	$	19,620	$	19,391
Foreign		517		203
Income before income taxes	$	20,137	$	19,594

The components of the provision for income taxes are as follows (in thousands):

	Year Ended
	December 31,
	2023			2022
Current:
Federal	$	3,644		$	3,536
Foreign		66			58
State		1			1
Total Current		3,711			3,595
Deferred - net		(1,383	)		(1,664	)
Provision for income taxes	$	2,328		$	1,931

The effective tax rate differs from the applicable U.S. statutory federal income tax rate as follows:

	Year Ended
	December 31,
	2023			2022
U.S. statutory federal taxes at statutory rate		21.00	%		21.00	%
State taxes - net of federal benefit		0.10			0.01
Research and development benefit		(0.91	)		(0.91	)
Stock-based compensation		0.83			0.33
Foreign derived intangible income (FDII)		(9.73	)		(11.05	)
Permanent items and other		0.06			0.11
Change in valuation allowance		0.21			0.37
Effective tax rate		11.56	%		9.86	%

The components of net deferred tax assets and liabilities are as follows:

	Year Ended
	December 31,
	2023			2022
Deferred tax assets:
Net operating loss carryforwards	$	53		$	85
Research and other credits		721			652
Accruals		622			508
Lease liability		176			115
Intangibles		171			174
Capitalization of R&D expenses		2,769			1,523
Stock-based Compensation		105			131
Other		40			70
Total deferred tax assets		4,657			3,258
Valuation allowance		(778	)		(737	)
Deferred tax liabilities:
Property and equipment, net	$	(76	)		(128	)
Right-of-use assets		(178	)		(113	)
Other		(5	)		—
Total deferred tax liabilities		(259	)		(241	)
Deferred tax assets - net	$	3,620		$	2,280

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which temporary differences become deductible or includable in taxable income. Management considers projected future taxable income and tax planning strategies in making this assessment. Based on the level of current period taxable income and its expected recurring profitability, management believes it is more likely than not that the Company will realize benefits of deductible differences and thus has not recorded a full valuation allowance at the federal level. However, the Company believes it is more likely than not that the Company will not realize the state benefits of deductible differences due to existing attributes available to offset future taxable income and liability. As such, a full valuation allowance is recorded at the state level.

As of December 31, 2023, the Company had net operating loss carryforwards (“NOL”) of nil for U.S. federal income tax purposes and approximately $0.8 million for California state income tax purposes. These NOL carryforwards will begin to expire in 2033 if unused. As of December 31, 2023, the Company had U.S. federal and California state tax credit carryforwards of nil and $ 1.2 million, respectively. The California tax credit carryforward carries forward indefinitely.

Current tax laws impose substantial restrictions on the utilization of net operating losses and credit carryforwards in the event of an "ownership change", as defined by the Internal Revenue Code. If there should be an ownership change, the Company's ability to utilize its carryforwards could be limited.

The Company applies the provisions of the applicable accounting guidance regarding accounting for uncertainty in income taxes, which require application of a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. If the recognition threshold is met, the applicable accounting guidance permits the recognition of a tax benefit measured at the largest amount of such tax benefit that, in the Company’s judgment, is more than fifty percent likely to be realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions to be recognized in earnings in the period in which such determination is made. The Company will continue to review its tax positions and provide for, or reverse, unrecognized tax benefits as issues arise.

As of December 31, 2023, the Company had gross unrecognized tax benefits, excluding interest, of approximately $0.1 million for U.S. federal and $0.3 million for California state due to research and development credits. The reversal of the uncertain tax benefits would impact the effective tax rate.

The following table summarizes the activities related to the Company’s gross unrecognized tax benefits (in thousands):

	Year Ended
	December 31,
	2023			2022
Balance at the beginning of the year	$	391		$	356
Increases related to current year tax positions		55			58
Decreases related to current year tax positions		(39	)		(23	)
Balance at the end of the year	$	407		$	391

The Company recognizes interest and penalties related to unrecognized tax positions in provision for income taxes on the Consolidated Income Statements and Comprehensive Income. The Company had approximately $6,200 and $4,200 of accrued interest and penalties related to uncertain tax positions as of December 31, 2023 and 2022, respectively.

The Company files income tax returns in the U.S. federal, California, and foreign jurisdictions with varying statutes of limitations. The Company is generally no longer subject to tax examinations for years prior to 2019 for federal purposes and 2018 for state purposes, except in certain limited circumstances. The Company's NOL and credit carryforwards from all years may be subject to adjustment for four years for California following the year in which utilized. Since the company has California NOLs carryforwards from 2012 which remain subject to adjustment for four years following the year in which utilized, tax years 2012-2022 may remain open for state audit. The Company does not anticipate that any potential tax adjustments will have a significant impact on its financial position or results of operations.

The Company is not currently under audit with either the IRS or any state or local jurisdiction, nor has it been notified of any other potential future state income tax audit.

The CHIPS and Science Act of 2022 (CHIPS) and the Inflation Reduction Act (IRA) of 2022 were signed into law by President Biden on August 9, 2022 and August 16, 2022, respectively. The legislation introduces new options for monetizing certain credits, a corporate alternative minimum tax, and a stock repurchase excise tax. The Company has concluded that the impact of any of the provisions included in CHIPS and IRA acts will not have a material impact on the Company's 2023 financial statements.