(a)

Income Taxes

The income tax provisions for the years ended December 31 are as follows (in thousands):


	2020			2019
Current:
U.S. federal	$	—		$	1
State and local		(2	)		3

Foreign		269			144
Total current provision		267			148

Deferred:
U.S. federal		10			10
State and local		(4	)		5

Total deferred provision		6			15

Total tax provision	$	273		$	163

(b)

Tax Rate Reconciliation

Reconciliations of the total income tax provision tax rate to the statutory federal income tax rate of 21% for the years ended December 31, 2020 and 2019, respectively, are as follows (in thousands):


	2020			2019
Income taxes at statutory rates	$	(631	)	$	229
State income tax, net of federal benefit		(6	)		8
Permanent items		(20	)		(11	)
Meals and entertainment		29			50
Equity based compensation		81			(8	)
Research and development credit		(168	)		(94	)
Federal return to provision		(136	)		101
Foreign taxes		269			144
Other		—			1
Change in federal valuation allowance		855			(257	)

	$	273		$	163

(c)

Significant Components of Current and Deferred Taxes

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, are as follows (in thousands):


	2020			2019
Deferred tax assets:
Net operating loss carryforward s	$	4,741		$	4,564
Research and AMT credits		2,664			2,208
Stock based compensation		733			387
Accrued and other		928			748

		9,066			7,907
Less valuation allowance		(8,520	)		(7,455	)

Deferred tax assets, net of allowance		546			452

Deferred tax liabilities:
Fixed assets		(344	)		(288	)
Goodwill		(260	)		(216	)

Deferred tax liabilities		(604	)		(504	)

Total deferred tax liabilities	$	(58	)	$	(52	)

The Company has established a valuation allowance against its net deferred tax assets due to the uncertainty

surrounding

the realization of such assets. The Company periodically evaluates the recoverability of the deferred tax assets. At such time it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will be reduced. The Company has recorded a valuation allowance of $8.5 million as of December 31, 2020 as it does not believe it is more likely than not that certain deferred tax assets will be realized due to the recent history of both pre-tax book income and losses, the lack of taxable income available in carryback periods or feasible tax-planning strategies, the limited existing taxable temporary differences, and the subjective nature of forecasting future taxable income into the future. The Company increased its valuation allowance by approximately $1.1 million during the year ended December 31, 2020.

At December 31, 2020 the Company had federal and California tax loss carryforwards of approximately $19.9 million, and $5.7 million, respectively.

The federal loss generated post 2018 of $2.6 million will carryforward indefinitely and be available to offset up to 80% of future taxable income each year.

The remaining federal and state net operating loss

carryforwards

begin to expire in 2022 and 2028, respectively, if unused.

At December 31, 2020 the Company had federal and state tax credit

carryforwards

of approximately $1.3 million, and $1.4 million, respectively, after reduction for uncertain tax positions. The federal credits will begin to expire in 2026, if unused, and the state credits

carryforwards

indefinitely.

Pursuant to the Internal Revenue Code of 1986, as amended (IRC), specifically IRC §382 and IRC §383, the Company’s ability to use net operating loss and research and development tax credit

carryforwards

(“tax attribute

carryforwards

”) to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more than 50% within a three-year testing period. The Company has not completed an ownership change analysis pursuant to IRC Section 382 for taxable years ended after December 31, 2012. If ownership changes within the meaning of IRC Section 382 are identified as having occurred subsequent to 2012, the amount of remaining tax attribute

carryforwards

available to offset future taxable income and income tax expense in future years may be significantly restricted or eliminated. Further, the Company’s deferred tax assets associated with such tax attributes could be significantly reduced upon realization of an ownership change within the meaning of IRC §382.

The following table summarizes the reconciliation of the unrecognized tax benefits activity during the years ended December 31 (in thousands):


	2020		2019
Beginning unrecognized tax benefits	$	765	$	732
Decreases related to prior year tax positions		36		(7	)
Increases related to current year tax positions		78		40

Ending unrecognized tax benefits	$	879	$	765

The unrecognized tax benefit amounts are reflected in the determination of the Company’s deferred tax assets. If recognized,

9,000 of these amounts would impact company’s effective tax rate. The Company does not foresee material changes to its uncertain tax benefits within the next twelve months.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company has an accrual for interest or penalties of $61,000 and $3,000 on the Company’s balance sheets as of December 31, 2020 and 2019, respectively, and has recognized interest and/or penalties of $57,000 and $1,000 in the Statement of Operations for each of the two years ended December 31, 2020 and 2019, respectively.

Due to the existence of federal and state net operating loss and credit carryovers, the Company’s tax years that remain open and subject to examination by tax jurisdiction are years 2000 and forward for federal and years 2006 and forward for the state of California.