Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

14.  INCOME TAXES    

The tax provision includes estimated federal, state and foreign income taxes on the Company’s pre-tax income. The tax provisions also may include discrete items, generally related to increases or decreases in tax reserves, tax provision vs. tax return differences and accrued interest for potential liabilities.

The reconciliation of the federal statutory rate on the income before income taxes to the effective income tax rate for the years ended December 31 is as follows:

	2021			2020			2019
Statutory federal tax rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal income tax benefit		(4.2	)		(0.5	)		(8.1	)
Increase in valuation allowance		9.2			41.2			2.2
Permanent items		(17.9	)		(48.7	)		(3.9	)
Tax credits		(5.7	)		(11.2	)		(15.6	)
Provision vs. tax return differences		(2.0	)		0.7			9.0
Foreign rate differential and deferred items		—			0.1			0.6
Other		(0.1	)		0.3			—
		0.3	%		2.9	%		5.2	%

In 2021 and 2020, the Company was in a taxable loss position which generated net operating loss carryforwards, primarily due to tax deductions on exercises of stock-based compensation of approximately $55,300,000 and $49,500,000, respectively.

In 2019, the Company utilized net operating loss carryforwards and tax credits to offset federal income tax expense.

For financial reporting purposes, income before income taxes for the years ended December 31 include the following components (in thousands):     

	2021		2020		2019
Domestic	$	56,620	$	17,688	$	13,493
Foreign		185		773		1,394
	$	56,805	$	18,461	$	14,887

Significant components of the provision (benefit) for income taxes for the years ended December 31 are as follows (in thousands):

	2021			2020			2019
Current:
Federal	$	1		$	215		$	—
State		(14	)		93			268
Foreign		171			252			450
		158			560			718
Deferred:
Foreign		18			(21	)		60
		18			(21	)		60
	$	176		$	539		$	778

Significant components of the Company’s deferred tax assets and liabilities as of December 31 were as follows (in thousands):

	2021			2020
Deferred tax assets:
Research and development tax credit carryforwards	$	36,041		$	29,046
Net operating loss carryforwards		5,985			5,923
Stock-based compensation		2,341			1,796
Inventory reserves		2,268			2,282
Investment tax credit carryforwards		1,928			1,927
UNICAP		1,363			1,336
Vacation accrual		1,338			1,349
Lease liabilities		787			518
Accrued payroll tax deferral		384			764
Other		1,568			1,197
Total deferred tax assets		54,003			46,138
Less: Valuation allowance for deferred tax assets		(43,329	)		(37,856	)
Net deferred tax assets		10,674			8,282
Deferred tax liabilities:
Depreciation		(9,048	)		(6,809	)
ROU assets		(756	)		(490	)
Prepaid expenses		(662	)		(616	)
Other		—			(141	)
Total deferred tax liabilities		(10,466	)		(8,056	)
Net deferred tax assets (liabilities)	$	208		$	226

As of December 31, 2021, the Company has a valuation allowance of approximately $43,329,000 against all net domestic deferred tax assets, for which realization cannot be considered more likely than not at this time. Management assesses the need for the valuation allowance on a quarterly basis. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. Despite recent positive operating results, as a result of increases in bookings, the Company is in a cumulative loss position as of December 31, 2021, primarily due to tax deductions on 2020 and 2021 exercises of stock-based compensation. The Company faces uncertainties in forecasting its operating results due to vendor supply and factory capacity constraints, certain process issues with the production of Advanced Products and the unpredictability in certain markets. This operating uncertainty also makes it difficult to predict the availability and utilization of tax benefits over the next several years. As a result, management has concluded, at this time, is more likely than not the Company’s net domestic deferred tax assets will not be realized, and a full valuation allowance against all net domestic deferred tax assets is still warranted as of December 31, 2021. The valuation allowance against these deferred tax assets may require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance. If the positive operating results and increases in bookings continue, and the Company’s concerns about industry uncertainty and world events, supply and capacity constraints, and process issues with the production of Advanced Products are resolved, and the amount of tax benefits the Company is able to utilize to the point that the Company believes future taxable income can be more reliably forecasted, the Company may release all or a portion of the valuation allowance in the near-term. Certain state tax credits, though, will likely never be released by the valuation allowance. If and

when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s Consolidated Statements of Operations, the effect of which would be an increase in reported net income.

The state and federal research and development tax credit carryforwards of approximately $13,970,000 and $24,807,000, respectively, expire beginning in 2021 for state purposes and in 2025 for federal purposes. The Company has federal net operating loss carryforwards generated after 2017 of approximately $25,963,000, which have an indefinite carryforward period and certain state operating loss carryforwards of approximately $24,804,000, which expire beginning in 2025.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	2021			2020			2019
Balance on January 1	$	2,297		$	2,070		$	1,462
Additions based on tax positions related to the current year		625			244			571
Additions (reductions) for tax positions of prior years		393			(13	)		43
Lapse of statute		(69	)		(4	)		(6	)
Balance on December 31	$	3,246		$	2,297		$	2,070

The Company has reviewed the tax positions taken, or to be taken, in its tax returns for all tax years currently open to examination by a taxing authority. The total amount of unrecognized tax benefits, that is the aggregate tax effect of differences between tax return positions and the benefits recognized in the Company’s financial statements, as of December 31, 2021, 2020, and 2019 of $3,246,000, $2,297,000, and $2,070,000, respectively, if recognized, may decrease the Company’s income tax provision and effective tax rate. None of the unrecognized tax benefits as of December 31, 2021 are expected to significantly change during the next twelve months.

The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. During the years ended December 31, 2021, 2020, and 2019, the Company recognized approximately $19,000, $17,000, and $7,000, respectively, in net interest expense. As of December 31, 2021 and 2020, the Company had accrued approximately $52,000 and $58,000, respectively, for the potential payment of interest.

The Company files income tax returns in the United States and various foreign tax jurisdictions. These tax returns are generally open to examination by the relevant tax authorities from three to seven years from the date they are filed. The tax filings relating to the Company’s federal and state taxes are currently open to examination for tax years 2018 through 2020 and 2012 through 2020, respectively. In addition, the Company generated federal research and development credits in tax years 2005 through 2017. These years may also be subject to examination when the credits are carried forward and utilized in future years.

The Company was informed in September 2021 by the Internal Revenue Service of their intention to examine the Company’s 2019 Federal income tax return. The examination is in its early stages. There are no other audits or examinations in process in any other jurisdiction.