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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | F. Income Taxes The Company periodically undertakes a review of its valuation allowance and it evaluates all positive and negative factors that may affect whether it is more likely than not that the Company would realize its future tax benefits from its deferred tax balances. In 2014, the Company introduced a number of changes, most notably the decision to exit the low-margin, high-volume telecommunications market and focus on engineered solutions in the aerospace and defense markets. This turnaround plan was engineered and executed by the Company’s previous chief executive officer, with the consent of the Board of Directors and participation by management. Over the following five years, the negative factors that caused the Company to produce continuing losses in the U.S. tax jurisdiction were eliminated, with the result being sustained increases in the Company’s sales, revenues, and backlog. Margins from its new and improved products and services have continually increased and the Company maintains a strong backlog of orders with its customers to support the assertion that it is more likely than not that substantially all of its net deferred tax assets will be utilized and that associated valuation allowances should be eliminated. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will or will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Based upon the weighting of positive and negative evidence, the Company has determined the results of future operations of one of its foreign subsidiaries will generate enough taxable income that it is more likely than not that deferred tax assets of $67,000 at December 31, 2019, generated from foreign NOLs, can be utilized in the foreseeable future. In the third quarter of 2019, the Company further determined that a full valuation against the remaining net deferred tax assets was no longer required and reversed a previously recorded valuation allowance, recording deferred tax assets at the amount that is more likely than not to be realized. The net balance of the deferred tax asset was approximately $5.2 million as of December 31, 2018, with a related valuation allowance of $5.1 million. Through the nine months ended September 30, 2019, the Company was able to realize $0.7 million of its deferred tax assets as a result of its profitable operations. At September 30, 2019, the Company wrote off $0.7 million of deferred tax assets and the related valuation allowance for certain deferred tax assets which were no longer realizable, and released $3.3 million from its valuation allowance, representing the net realizable portion of its U.S. deferred tax assets, with the balance of the valuation allowance of $0.4 million covering that portion of the Company’s U.S. deferred tax assets which are not expected to be realized, relating to research and development tax credits. Should a change in circumstances lead to a change in judgment about the ability to realize deferred tax assets in future years, the Company will adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income. Income tax (benefit) provision for the years ended December 31, 2019 and 2018 is as follows:
|  | 2019 |  |  | 2018 |
|  | (in thousands) |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | (57 | )
State and local |  |  | 30 |  |  |  | 20 |
Foreign |  |  | 43 |  |  |  | 156 |
Total Current |  |  | 73 |  |  |  | 119 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | 1,322 |  |  |  | 616 |
State and local |  |  | 147 |  |  |  | (86 | )
Foreign |  |  | 60 |  |  |  | 46 |
Total before change in valuation allowance |  |  | 1,529 |  |  |  | 576 |
Change in valuation allowance |  |  | (4,709 | ) |  |  | (530 | )
Net deferred |  |  | (3,180 | ) |  |  | 46 |
Income tax (benefit) provision |  | $ | (3,107 | ) |  | $ | 165 |
A reconciliation of the (benefit) provision for income taxes and the amount computed by applying the statutory federal income tax rate to income before income taxes is detailed below:
|  | 2019 |  |  | 2018 |
|  | (in thousands) |
Tax provision at expected statutory rate |  | $ | 821 |  |  | $ | 330 |
State taxes, net of federal benefit |  |  | 92 |  |  |  | 43 |
Permanent differences |  |  | 34 |  |  |  | 122 |
Credits |  |  | (108 | ) |  |  | (82 | )
Foreign tax expense, and other |  |  | 13 |  |  |  | 420 |
Change in rate |  |  | 63 |  |  |  | (138 | )
Change in valuation allowance |  |  | (4,709 | ) |  |  | (530 | )
Permanent true-ups |  |  | 687 |  |  |  | — |
(Benefit) provision for income taxes |  | $ | (3,107 | ) |  | $ | 165 |
Deferred income taxes for 2019 and 2018 were provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Tax effects of temporary differences and carry-forwards at December 31, 2019 and 2018 were as follows:
|  | December 31, 2019 |  |  | December 31, 2018 |
|  | Deferred Tax |  |  | Deferred Tax |
|  | Asset |  |  | Liability |  |  | Asset |  |  | Liability |
|  | (in thousands) |
Inventory reserve |  | $ | 239 |  |  | $ | — |  |  | $ | 301 |  |  | $ | — |
Fixed assets |  |  | — |  |  |  | 100 |  |  |  | — |  |  |  | 90 |
Other reserves and accruals |  |  | 358 |  |  |  | — |  |  |  | 207 |  |  |  | — |
Stock-based compensation |  |  | 6 |  |  |  | — |  |  |  | 23 |  |  |  | — |
Other |  |  | — |  |  |  | 18 |  |  |  | — |  |  |  | 24 |
Tax credit carry-forwards |  |  | 1,724 |  |  |  | — |  |  |  | 1,966 |  |  |  | — |
Federal tax loss carry-forwards |  |  | 1,169 |  |  |  | — |  |  |  | 1,980 |  |  |  | — |
State tax loss carry-forwards |  |  | 250 |  |  |  | — |  |  |  | 734 |  |  |  | — |
Foreign tax loss carry-forwards |  |  | 67 |  |  |  | — |  |  |  | 127 |  |  |  | — |
Total deferred income taxes |  |  | 3,813 |  |  | $ | 118 |  |  |  | 5,338 |  |  | $ | 114 |
Valuation allowance |  |  | (388 | ) |  |  |  |  |  |  | (5,097 | ) |  |  |  |
Net deferred tax assets |  | $ | 3,307 |  |  |  |  |  |  | $ | 127 |  |  |  |  |
Deferred tax assets totaled $3.7 million at December 31, 2019, which includes the tax effect of federal, state, and foreign net operating loss carryforwards and our federal tax credits. We recognize federal, state, and foreign net operating loss carryforwards and our federal tax credits as deferred tax assets, subject to valuation allowances. At each balance sheet date, we estimate the amount of carryforwards that are not expected to be used prior to expiration of the carryforward period. The Company has a total gross federal NOL carry-forward of $5,565,000 as of December 31, 2019. This federal NOL carry-forward expires through 2038 if not utilized prior to that date. The Company has total state NOL carry-forwards of $6,680,000 as of December 31, 2019. These state NOL balances have unlimited carryforward periods. The Company has research and development tax credit carry-forwards of approximately $1,724,000 at December 31, 2019 that can be used to reduce future income tax liabilities and expire principally between 2020 and 2038. The tax effect of the carryforwards that are not expected to be used prior to their expiration is included in the valuation allowance. At December 31, 2019, the balance in the Company’s valuation allowance was $388,000, consisting primarily of research and development tax credits expiring between 2020 and 2024. The Company files income tax returns in the U.S. federal, various state, Hong Kong and India jurisdictions. The statute of limitations for assessment by the Internal Revenue Service ("IRS") and state tax authorities is open for tax returns for years ended December 31, 2016, 2017 and 2018, although carry-forward attributes that were generated prior to tax year 2016, including NOL carry-forwards and tax credits, may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period. The Company is generally subject to examinations by foreign tax authorities from 2014 to the present. The Company will recognize any interest and penalties related to unrecognized tax positions in income tax expense. At the date of adoption of ASC 740, the Company did not have a liability for unrecognized tax positions. As of December 31, 2019, management assessed the balances of its deferred tax assets and liabilities and has determined that it has not taken any aggressive tax positions that may be considered uncertain under ASC 740-10.

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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 Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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