INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES [Abstract]

INCOME TAXES

7.         INCOME TAXES

The components of income before income taxes were as follows (in thousands):

	Years ended December 31,
	2021		2020
Income from operations before income taxes
Domestic	$	3,158	$	609
Foreign		42		(8)
Total	$	3,200	$	601

The components of income tax expense (benefit) were as follows (in thousands):

	Years ended December 31,
	2021			2020
Current:
Federal	$	—		$	2
State		17			2
Foreign		3			22
	$	20		$	26
Deferred:
Federal	$	894		$	(461	)
State		49			(33	)
Foreign		(58	)		6
		885			(488	)
Total income tax expense (benefit)	$	905		$	(462	)

A reconciliation from the federal statutory income tax provision to our effective tax expense (benefit) is as follows (in thousands):

	Years ended December 31,
	2021			2020
United States federal tax statutory rate	$	686		$	143
State taxes, net of federal benefit		(37	)		(31	)
Changes in valuation allowances against deferred tax assets		(132	)		—
Research and development tax credits		(24	)		(125	)
Foreign provision different than U.S. tax rate		31			6
PPP loan forgiveness		(196	)		—
Nondeductible expenses		43			(137	)
Deferred true-up		295			(226	)
Write off of attributes from disposed entity		279			—
Other		(40	)		(92	)
Total	$	905		$	(462	)

A summary of the deferred tax assets and liabilities is as follows (in thousands):  

	December 31,
	2021			2020
Deferred tax assets (liabilities):
Accrued compensation and benefits	$	6		$	7
Inventory reserves		5			3
Allowance for doubtful accounts		14			—
Prepaid expenses and other		(35	)		(52	)
Warranty reserves		2			15
Intangible and other assets		(267	)		(158	)
Net operating loss carryforwards		3,757			4,756
Property, equipment and other		3			(10	)
Research and development credit		2,951			2,890
Total deferred tax asset:		6,436			7,451
Less: valuation allowance		(1,612	)		(1,743	)
Total deferred tax assets:	$	4,824		$	5,708

As of December 31, 2021, the Company had sustained a significant accumulated tax loss. The net operating loss (“NOL”) carry forward in the United States and Canada as of December 31, 2021 was $16.7 million and $246,000, respectively.     

On a quarterly basis, the Company evaluates all positive and negative evidence in determining if the valuation allowance is fairly stated. The valuation allowance of $1.6 million and $1.7 million at December 31, 2021 and 2020, respectively, relates to state and foreign net operating losses, U.S. federal and state research and development credits, and foreign tax credits that are not more likely than not to be utilized.

In accordance with Accounting Standards Codification ("ASC") 740‑30, Income Taxes, we have not recognized a deferred tax liability for the undistributed earnings of certain of our foreign operations because those subsidiaries have invested or will invest the undistributed earnings indefinitely. It is impractical for us to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings. Deferred taxes are recorded for earnings of foreign operations when we determine that such earnings are no longer indefinitely reinvested.  

During 2021, the Company identified an error related to the 2020 income tax provision which resulted in the income tax benefit to be overstated by approximately $224,000 for the year ended December 31, 2020.  The error was corrected during the fourth quarter of 2021, resulting in the income tax expense for the year ended December 31, 2021 to be overstated by a corresponding $224,000.  The error relates to the accounting for the tax benefits of certain operating losses of the Company's ISS HK foreign entity.  Management has determined the error was not material to either the 2021 or 2020 consolidated financial statements.

The Company had recognized no material uncertain tax positions as of December 31, 2021. The Company files income tax returns in the U.S federal jurisdiction and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S federal or state and local income tax examinations by tax authorities for years before 2018. It is difficult to predict the final timing and resolution of any particular uncertain tax position. Based on the Company's assessment of many factors, including past experience and complex judgments about future events, the Company does not currently anticipate significant changes in its uncertain tax positions over the next 12 months.