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Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

Note 8- Income Taxes

Under GAAP, we use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The components of earnings before income taxes for the years ended December 31, 2022 and 2021 were as follows:

​

​	​	​	​	​	​	​
​	​	Year Ended
​	​	December 31,
​		2022			2021
​	​	(in thousands)
Income (loss) before income taxes:	​	​	​	​	​	​
Domestic	​	$	1,363	​	$	(921)
Foreign	​		580	​		792
​	​	$	1,943	​	$	(129)

​

Income tax provision (benefit) consists of the following for the years ended December 31, 2022 and 2021:

​

​	​	​	​	​	​	​
​	​	Year Ended
​	​	December 31,
​		2022			2021
​	​	(in thousands)
Income tax provision (benefit):	​	​	​	​	​	​
Current		​			​
Federal	​	$	254	​	$	(113)
State	​		13	​		1
Foreign	​		130	​		198
Total current	​		397	​		86
Deferred:	​		​	​		​
Federal	​		—	​		267
State	​		—	​		253
Foreign	​		(126)	​		(1)
Total deferred	​		(126)	​		519
Total income tax provision (benefit)	​	$	271	​	$	605

​

A reconciliation of the income tax provision (benefit) by applying the statutory United States federal income tax rate to income (loss) before income taxes is as follows:

​

​	​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​	​	2022				​	2021
​		$			%		$			%
​	​	(in thousands, except percentages)
Federal income tax provision (benefit) at statutory rate	​	$	408	​	21.0	%	$	(27)	​	21.0	%
State tax expense net of federal tax benefit	​		130	​	6.7	​		(63)	​	49.0	​
Foreign taxes	​		22	​	1.1	​		24	​	(18.5)	​
Other	​		(137)	​	(7.1)	​		42	​	(33.1)	​
Change in valuation allowance	​		(152)	​	(7.8)	​		629	​	489.0	​
Income tax provision (benefit)	​	$	271	​	13.9	%	$	605	​	470.6	%

​

Deferred tax assets and liabilities are recognized for future tax consequences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Significant deferred tax assets and liabilities, consist of the following:

​

​	​	​	​	​	​	​
​	​	December 31,
​		2022			2021
​	​	(in thousands)
Deferred taxes, net	​	​	​	​	​	​
Net operating loss carryforward	​	$	211	​	$	469
Accruals	​		62	​		22
Reserves	​		66	​		9
Property, plant and equipment, and intangible assets	​		124	​		48
Stock-based compensation expense	​		85	​		85
Other	​		63	​		4
Total deferred tax assets	​		611	​		637
Valuation allowance	​		(477)	​		(629)
Net deferred tax assets	​	$	134	​	$	8

​

Deferred taxes are recorded for the following net operating losses (“NOLs”) that can be used in future tax years:

​

​	​	​	​	​	​	​
​	​	December 31,
​		2022			2021
​	​	(in millions)
Net operating losses	​	​	​	​	​	​
Federal	​	$	0.6	​	$	1.1
State	​		1.3	​		3.2
Foreign	​		—	​		—
​	​	$	1.9	​	$	4.3

​

The federal and state NOLs expire at various dates between 2022 through 2030. Foreign NOLs are related to the jurisdiction of Hong Kong and may be carried forward indefinitely.

The Company experienced an ownership change under IRC Section 382 in February 2010. In general, a Section 382 ownership change occurs if there is a cumulative change in our ownership by “5% shareholders” (as defined in the Internal Revenue Code of 1986, as amended) that exceeds 50 percentage points over a rolling three-year period. An ownership change generally affects the rate at which NOLs and potential other deferred tax assets are permitted to offset future taxable income. Certain state jurisdictions within which we operate contain similar provisions and limitations. As of December 31, 2022, $32.3 million of the federal NOLs and $13.9 million of the state NOLs are subject to annual limitations due to the February 2010 ownership change, at approximately $71 thousand per year. Because these limitations preclude the use of a large portion of these NOLs, the Company permanently wrote-off the related deferred tax assets during the year ended December 31, 2015. Because the Company maintained a full valuation allowance against these deferred tax assets, this write-off had no impact on tax expense. At December 31, 2022, the gross NOLs without regard to this permanent write-off is $32.2 million for federal and $13.8 million for state. A roll-forward of the NOLs for which deferred tax assets are now recorded is as follows:

​

​	​	​	​	​	​	​
​	​	Year Ended
​	​	December 31,
​		2022			2021
​	​	(in millions)
Net operating losses	​	​	​	​	​	​
Balance at January 1,	​	$	4.3	​	$	2.9
NOL generated (utilized)	​		(2.4)	​		1.4
NOL expired unused	​		—	​		—
Other, including changes in foreign exchange rates	​		—	​		—
Balance at December 31,	​	$	1.9	​	$	4.3

​

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. We analyzed our need to record a valuation allowance against our otherwise recognizable net deferred tax assets in the federal, state and foreign jurisdictions, and we determined that a valuation allowance on federal and state deferred tax assets was necessary at both December 31, 2022 and 2021, while no valuation allowance on foreign deferred tax assets was necessary at both December 31, 2022 and 2021. One objective negative piece of evidence we evaluated was our cumulative domestic loss incurred over the three-year periods ended December 31, 2022 and 2021. Such objective negative evidence limits our ability to consider other subjective evidence, such as our projections for future profitability. On the basis of this evaluation, as of December 31, 2022 and 2021, a valuation allowance of $477 thousand and $629 thousand, respectively, was recorded against our domestic deferred tax assets. The amount of deferred tax assets considered realizable could be adjusted in future periods if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for future profitability.

The Internal Revenue Code includes a provision, referred to as Global Intangible Low-Taxed Income (“GILTI”), which provides for a 10.5% tax on certain income of controlled foreign corporations. We have elected to account for GILTI as a period cost if and when occurred, rather than recognizing deferred taxes for basis differences expected to reverse.

Of the $10.1 million of cash balances on hand at December 31, 2022, $0.9 million was held by our foreign subsidiaries. If these funds are needed for our operations in the U.S., we have several methods to repatriate the funds without significant tax effects, including

repayment of intercompany loans or distributions of previously taxed income. Other distributions may require us to incur U.S. or foreign taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside the U.S. and our current plans do not demonstrate a need to repatriate cash to fund our U.S. operations.

The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. U.S. federal income tax returns after 2018 remain open to examination. We and our subsidiaries are also subject to income tax in multiple state and foreign jurisdictions. Generally, state and foreign income tax returns after 2017 remain open to examination. No income tax returns are currently under examination. As of December 31, 2022 and 2021, the Company does not have any unrecognized tax benefits, and continues to monitor its current and prior tax positions for any changes. The Company recognizes penalties and interest related to unrecognized tax benefits as income tax expense. For the years ended December 31, 2022 and 2021, there were no penalties or interest recorded in income tax expense.

X

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- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

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