INCOME TAXES

12 Months Ended

Dec. 31, 2022

INCOME TAXES

INCOME TAXES

NOTE 12 – INCOME TAXES

Components of income (loss) before taxes:

	Year Ended December 31,
(in thousands)	2022			2021
U.S. operations	($1,622		)	($2,086		)
Foreign operations		1,185			1,643
Total income (loss) before taxes	($437		)	($443		)

Income tax expense (benefit) consists of:

	Year Ended December 31,
(in thousands)	2022		2021
Current tax expense (benefit)
U.S. federal	$	0	$	0
State		19		(2	)
Foreign		664		114
		683		112
Deferred tax expense (benefit) – U.S. federal		-		-
Total income tax expense (benefit)	$	683	$	112

A reconciliation of our effective income tax and the U.S. federal tax rate is as follows:

	Year Ended December 31,
(in thousands)	2022			2021
Statutory tax	($92		)	($93		)
State and foreign income tax, net of federal income tax benefit		(189	)		(254	)
Valuation allowance for deferred tax assets		370			454
Foreign sourced deemed dividend income		738			341
Stock based compensation		(154	)		(325	)
Other		10			(11	)
Total income tax expense (benefit)	$	683		$	112

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets are presented below:

	Year Ended December 31,
	2022			2021
(in thousands)
Deferred income tax assets:
Allowance for doubtful accounts	$	22		$	13
Inventory and product return reserves		477			484
Compensation accruals		2,511			2,421
Accrued liabilities		151			202
Book-over-tax depreciation and amortization		25			23
Foreign net operating loss carryforwards		149			22
U.S. net operating loss carryforwards		4,399			3,301
U.S. credit carryforwards		1,560			1,440
		9,294			7,906
Valuation Allowance		(9,294	)		(7,906	)
Total Deferred Income Tax Assets	$	-		$	-

The valuation allowance for deferred tax assets increased $1,388,000 and decreased $(1,057,000) during the years ended December 31, 2022 and 2021, respectively. The net deferred tax assets have a full valuation allowance provided due to uncertainty regarding our ability to utilize such assets in future years. This full valuation allowance evaluation is based upon our volatile history of losses and the cyclical nature of our industry and capital spending. Credit carryforwards consist primarily of research and experimental and foreign tax credits. We intend to continue to reinvest foreign earnings of our operating subsidiaries.

U.S. net operating loss carryforwards are $20.9 million at December 31, 2021 with expiration years from 2023 to 2034. Utilization of net operating loss and credit carryforwards is subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as amended. We have not had a Section 382 ownership change, but if we did the usage of these tax assets would have an income usage limitation based on the value of the Company at the time of the change times the federal long-term tax-exempt rate.

The gross changes in uncertain tax positions resulting in unrecognized tax benefits are presented below:

	Year Ended December 31,
	2022		2021
(in thousands)
Unrecognized tax benefits, opening balance	$	392	$	365
Prior period tax position increases		-		-
Additions based on tax positions related to current year		30		27
Unrecognized tax benefits, ending balance	$	422	$	392

Historically, we have incurred minimal interest expense and no penalties associated with tax matters. We have adopted a policy whereby amounts related to penalties associated with tax matters are classified as general and administrative expense when incurred and amounts related to interest associated with tax matters are classified as interest income or interest expense.

Tax years that remain open for examination include 2019, 2020, 2021 and 2022 in the United States of America. In addition, various tax years from 2002 to 2014 may be subject to examination in the event that we utilize the net operating losses and credit carryforwards from those years in our current or future year tax returns.