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Note 7 - Income Taxes | 12 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Note 7 - Income Taxes | NOTE 7 — Income Taxes The Company recorded a net income tax expense $219,000 for 2019, compared to an income tax benefit of $143,000 for 2018. The components of income taxes for the periods ended December 31, 2019 and 2018 are as follows:
|  | Years Ended December 31,
|  | 2019 |  | 2018
Current: |  |  |  |
Federal |  | $ | (54,876 | ) |  | $ | — |
State |  |  | — |  |  |  | — |
Total Current |  |  | (54,876 | ) |  |  | — |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | 199,634 |  |  |  | (50,858 | )
State |  |  | 74,370 |  |  |  | (92,601 | )
Total Deferred |  |  | 274,004 |  |  |  | (143,459 | )
Income tax (benefit) expense |  | $ | 219,128 |  |  | $ | (143,459 | )
Reconciliation of the statutory federal income tax rate to the Company's effective tax rate:
|  | Years Ended December 31,
|  | 2019 |  | 2018
Federal tax at statutory rate |  |  | 21.00 | % |  |  | 21.00 | %
State income tax rate |  |  | 6.98 | % |  |  | 6.98 | %
Remeasurement of deferred taxes |  |  | — |  |  |  | — |
Expenses and credits not benefited |  |  | 27.51 | % |  |  | (7.90 | %)
Provision for taxes |  |  | 55.49 | % |  |  | 20.08 | %
As of December 31, 2019, the Company did not recognize deferred tax assets relating to an excess tax benefit for stock-based compensation deduction of $2,539,000. Unrecognized deferred tax benefits will be accounted for as a credit to additional paid-in capital when realized through a reduction in income taxes payable. Deferred income tax reflects the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. At December 31, 2019, the Company released valuation allowance against substantially all deferred tax assets. Significant components of net deferred tax assets are valued approximately as follows:
|  | December 31,
Deferred tax assets: |  | 2019 |  | 2018
Net operating loss carryforwards |  | $ | 4,546,000 |  |  | $ | 4,849,000 |
Credits |  |  | 1,014,000 |  |  |  | 942,000 |
Capitalized research and development costs |  |  | — |  |  |  | — |
Other acquired intangibles |  |  | — |  |  |  | 6,000 |
Accruals not currently deductible |  |  | 685,000 |  |  |  | 648,000 |
Depreciation |  |  | 58,000 |  |  |  | 75,000 |
Total deferred tax assets |  |  | 6,303,000 |  |  |  | 6,520,000 |
Valuation allowance for deferred tax assets |  |  | (626,000 | ) |  |  | (569,000 | )
Net deferred tax assets |  |  | 5,677,000 |  |  |  | 5,951,000 |
Deferred tax liability: |  |  |  |  |  |  |  |
Acquired intangibles |  |  | (170,000 | ) |  |  | (170,000 | )
Net deferred tax assets |  | $ | 5,507,000 |  |  | $ | 5,781,000 |
As of December 31, 2019, the Company had net operating loss carryforwards for federal income tax purposes of approximately $20,623,000 which will expire at various dates beginning in 2023 and through 2038. Full valuation allowance is maintained for federal research and development tax credits of approximately $626,000. As of December 31, 2019, the Company had net operating loss carryforwards for California state income tax purposes of approximately $10,713,000, which will expire at various dates in 2029 and through 2038, and state research and development tax credits of approximately $388,000, which can be carried forward indefinitely. The Company has determined that utilization of existing net operating losses against future taxable income is not limited by Section 382 of the Internal Revenue Code. Future ownership changes, however, may limit the Company’s ability to fully utilize its existing net operating loss carryforwards against any future taxable income. A reconciliation of the beginning and ending amount of unrecognized tax benefits (“UTBs”), excluding interest and penalties, is as follows:
|  | Amount
Beginning balance at January 1, 2019 |  | $ | 942,000 |
Decreases in UTBs taken in prior years |  |  | — |
Increases in UTBs taken in current years |  |  | 77,000 |
Ending balance at December 31, 2019 |  | $ | 1,019,000 |
It is the Company's policy to include interest and penalties related to tax positions as a component of income tax expense. No interest was accrued for the period ended December 31, 2018. The Company estimates that the unrecognized tax benefit will not change significantly within the next twelve months. The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company is not currently under audit in any of its jurisdictions where income tax returns are filed.

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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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