INCOME TAXES

12 Months Ended

Dec. 31, 2022

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 Provision	2022		2021
Current provision:
Federal	$	16	$	640
State		41		98
Foreign		96		-
Related to UTP		28		19
		181		757
Deferred provision:
Federal		-		-
State		-		-
Foreign		-		82
		-		82
Total tax provision	$	181	$	839

Earnings occurring outside the U.S. are deemed to be indefinitely reinvested outside of the U.S. to support the Company’s foreign operations.  As a result, if the Company accumulates earnings overseas, they will be used for investment in the Company’s businesses outside the U.S.  The Company will use cash generated from U.S. operations and short- and long-term borrowings to meet the Company’s U.S. cash needs.  The determination of unrecognized deferred tax liabilities for temporary differences in investments in foreign subsidiaries is not practicable.

The Company has received $1.4 million in tax refund in 2022 as a result of the CARES Act NOL carryback provision and estimates that we will receive an additional $0.2 million in the future.  We have $3.7 million of state tax net operating loss (“NOL”) carryovers which will begin to expire in 2025.  We also have a full valuation allowance on $0.5 million of foreign tax NOL carryovers that do not expire and therefore no deferred tax assets.

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.

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

(in thousands)	Year Ended December 31,
Income (Loss) Before Income Taxes	2022			2021
United States	$	733		$	2,552
Spain		(83	)		(135	)
Canada		758			(229	)
Australia		-			(1	)
United Kingdom		-			6
TOTAL	$	1,408		$	2,193

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:	2022			2021
(in thousands)
Inventory	$	471		$	464
Stock-based compensation		93			59
Accounts receivable		14			4
Sales returns		47			125
Foreign currency translation gain/loss in OCI		689			342
Goodwill and other intangible assets amortization		-			-
Net operating loss		261			646
Accrued expenses		63			359
Leases		152			195
Other		-			2
Total deferred income tax assets		1,790			2,196
Less:  valuation allowance		(1,151	)		(1,489	)
Total deferred income tax assets, net of valuation allowance	$	639		$	707
Property and equipment depreciation	$	639		$	707
Total deferred income tax liabilities		639			707
Net deferred tax asset (liability)	$	-		$	-

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 $0.3 million decrease to the valuation allowance for deferred income tax assets was necessary as of December 31, 2022, as compared to 2021. 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, 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,
	2022			2021
Statutory rate – Federal U.S. income tax		21.0	%		21.0	%
State and local taxes		(0.6	)%		9.0	%
Permanent book/tax differences		11.3	%		3.0	%
Difference in tax rates in loss carryback periods		0.0	%		0.0	%
Change in valuation allowance		(20.3	)%		6.0	%
Rate differential on UTP reversals		2.0	%		1.0	%
Other, net		(0.5	)%		(1.7	)%
Effective rate		12.9	%		38.3	%

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 2016 and December 2017 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 2016.

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

	2022		2021
UTP at beginning of the year	$	415	$	393
Gross increase to tax positions in current period		7		3
Interest expense		28		19
UTP at end of year	$	450	$	415