Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

14. INCOME TAXES

Deferred taxes are provided on the liability method whereby deferred tax assets and liabilities are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax law and rates on the date of enactment.

Net deferred tax liabilities consisted of the following as of December 31, 2021 and 2020:

	December 31
(Amounts in thousands)	2021			2020
Deferred tax assets:
Share-based compensation	$	483		$	15
Warranty reserve		118			—
Inventory reserve		292			165
Allowance for bad debt		457			422
Deferred revenue		27			—
Right of use assets		37			—
Net operating loss carryover		29,204			19,037
Foreign losses		3,864			4,836
General business credits		256			256
Total deferred tax assets		34,738			24,731
Deferred tax liabilities:
Depreciation		(506	)		(382	)
Amortization		(3,854	)		(13,156	)
Total deferred tax liabilities		(4,360	)		(13,538	)
Valuation allowance:		(30,378	)		(11,193	)
Net deferred tax assets (liabilities)	$	—		$	—

The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to income (loss) from continuing operations before tax for fiscal 2020 due to the following:

	December 31, 2021						December 31, 2020
(Amounts in thousands)	US$’s			Rates			US$’s			Rates
Income tax benefit at statutory federal income tax rate	$	(32,140	)		21.0	%	$	8,397			21.0	%
State tax expense, net of federal benefit		(6,122	)		4.0	%		1,599			4.0	%
Permanent items		18,918			(12.4	)%		234			0.6	%
Other		(159	)		(0.1	)%		106			0.3	%
Valuation allowance		19,185			(12.5	)%		(7,430	)		(18.6	)%
Income tax benefit	$	—			—	%	$	2,906			(7.3	)%

As of December 31, 2021, the Company had domestic net operating loss carryforwards of approximately $116.8 million of which approximately $23.7 million was generated pre-2018 that may be carried forward 20 years to offset against future taxable income from the year 2019 through 2039, and approximately $93.1 million generated post-2017 that may offset future taxable income with no definite expiration date.

Due to the change in the ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years. We estimate $8.3 million of domestic NOLs will expire unused.

The Company records valuation allowances to reduce its deferred tax assets to an amount it believes is more likely than not to be realized. In assessing the realizability of deferred tax assets, management considers all positive and negative evidence to determine whether future taxable income will be generated during the periods in which those temporary differences become deductible. As a result, the Company recorded a valuation allowance on the portion of the deferred tax assets, including current year losses, deemed not to have enough sources of income to utilize the future benefits.

(Amounts in thousands)	Balance at Beginning of Period		Charges (credits) to expense		Charges (credits) to other accounts		Write-offs		Balance at End of Period
Deferred tax valuation allowance:
December 31, 2021	$	11,193	$	19,185	$	-	$	-	$	30,378
December 31, 2020	$	3,763	$	7,430	$	-	$	-	$	11,193

We are subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2021, tax years for 2018, 2019, 2020, and 2021 are subject to examination by the tax authorities. With few exceptions, as of December 31, 2021, we are no longer subject to US federal, state, and foreign examinations by tax authorities before 2018. Tax year 2018 was open as of December 31, 2020.

At December 31, 2021, the Company had foreign net operating loss carryforwards of approximately $15.5 million. Of these losses, $14.9 million are Canadian NOLs that may be carried forward 20 years to offset against future taxable income from the years 2019 through 2041. In addition, $0.6 million are from Israeli operations that may offset future taxable income with no definite expiration date.