INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES [Abstract]

INCOME TAXES

7.  INCOME TAXES

The provision for income taxes consists of the following:

(in thousands)	Year Ended December 31,
Income Tax Benefit	2021		2020
Current provision (benefit):
Federal	$	640	$	(1,385	)
State		98		65
Foreign		-		6
Related to UTP		19		20
		757		(1,294	)
Deferred provision (benefit):
Federal		-		(62	)
State		-		(3	)
Foreign		82		(19	)
		82		(84	)
Total tax provision (benefit)	$	839	$	(1,378	)

We have $2.2 million of net operating loss (“NOL”) carryovers which will begin to expire in 2025.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic.  The CARES Act, among other things, permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021.  In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.  The Company has evaluated the impact of the CARES Act and estimates the NOL carryback provision of the CARES Act will result in a cash tax benefit in excess of $1.0 million.

Income (loss) before income taxes was earned in the following tax jurisdictions:

(in thousands)	Year Ended December 31,
Income (Loss) Before Income Taxes	2021			2020
United States	$	2,552		$	(6,222	)
Spain		(135	)		161
Canada		(229	)		(204	)
Australia		(1	)		(7	)
United Kingdom		6			(7	)
TOTAL	$	2,193		$	(6,279	)

The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:

Deferred income tax assets:	2021			2020
(in thousands)
Inventory	$	464		$	498
Stock-based compensation		59			63
Accounts receivable		4			4
Sales returns		125			105
Foreign currency translation gain/loss in OCI		342			323
Goodwill and other intangible assets amortization		-			5
Net operating loss		646			665
Accrued expenses		359			170
Leases		195			250
Other		2			1
Total deferred income tax assets		2,196			2,084
Less:  valuation allowance		(1,489	)		(1,320	)
Total deferred income tax assets, net of valuation allowance	$	707		$	764
Property and equipment depreciation	$	707		$	682
Total deferred income tax liabilities		707			682
Net deferred tax asset (liability)	$	-		$	82

We are required to reduce deferred tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset 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 are deductible. We determined a $0.2 million increase to the valuation allowance for deferred income tax assets was necessary as of December 31, 2021, as compared to 2020. Our evaluation considered, among other things, the nature, frequency, and severity of losses, forecasts of future profitability and the duration of statutory carryforward periods.

Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, the difference in tax rates for loss carryback periods for the 2020 tax year, foreign income/loss positions, expenses that are nondeductible for tax purposes, the change in our valuation allowance associated with our deferred tax assets, and differences in tax rates.  Below is a reconciliation of our effective tax rate from the statutory rate:

	Year Ended December 31,
	2021			2020
Statutory rate – Federal U.S. income tax		21	%		21	%
State and local taxes		9	%		3	%
Permanent book/tax differences		3	%		(2	)%
Difference in tax rates in loss carryback periods		0	%		8	%
Change in valuation allowance		6	%		(10	)%
Rate differential on UTP reversals		1	%		0	%
Other, net		(2	)%		2	%
Effective rate		38	%		22	%

We file a consolidated U.S. income tax return as well as state tax returns on a consolidated, combined, or stand-alone basis, depending on the jurisdiction.  We are no longer subject to U.S. federal income tax examinations by tax authorities for years prior to the tax year ended December 2017.  Depending on the jurisdiction, we are no longer subject to state examinations by tax authorities for years prior to the December 2015 and December 2016 tax years. We file tax returns in a limited number of foreign jurisdictions.  With few exceptions, we are no longer subject to non-U.S. income tax examinations for years before 2015.

A reconciliation of the beginning and ending amount of uncertain tax positions (“UTP”) is as follows:

	2021		2020
UTP at beginning of the year	$	393	$	296
Gross increase to tax positions in current period		3		77
Interest expense		19		20
UTP at end of year	$	415	$	393

Included in the balance of UTPs as of December 31, 2021 and 2020 are $0.1 million of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of UTPs as of December 31, 2021 and 2020 are $0.3 million of tax benefits that, if recognized, would result in adjustments primarily to deferred taxes.