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INCOME TAXES | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | 14. INCOME TAXES The domestic and foreign components of the Company's income before provision for income taxes are as follows:
|  | 2021 |  |  | 2020 |
Domestic |  | $ | (4,175,915 | ) |  | $ | 8,110,620 |
Foreign |  |  | 117,468 |  |  |  | 529,406 |
Income (loss) before provision for income taxes |  | $ | (4,058,447 | ) |  | $ | 8,640,026 |
The provision (benefit) for income taxes consists of the following:
Current: |  | 2021 |  |  | 2020 |
Domestic |  | $ | — |  |  | $ | — |
State |  |  | 1,522,955 |  |  |  | — |
Foreign(1) |  |  | (37,871 | ) |  |  | 116,177 |
|  | $ | 1,485,084 |  |  | $ | 116,177 |
(1) $81,500 of expense in 2020 was recorded in Other expenses
Deferred |  |  |  |  |  |
Domestic |  | $ | (7,141,704 | ) |  | $ | — |
State and local |  |  | (1,877,538 | ) |  |  | — |
Foreign |  |  | (461,562 | ) |  |  | — |
|  |  | (9,480,804 | ) |  | $ | — |
Total |  |  | (7,995,720 | ) |  |  | 116,177 |
The reconciliation of the U.S. federal statutory rate to the Company's effective rate on income before provision (benefit) for income taxes is as follows:
|  | 2021 |  |  | 2020 |
U.S. Statutory federal rate |  |  | 21.0 | % |  |  | 21.0 | %
State taxes, net of federal benefit |  |  | (12.5 | )% |  |  | 4.4 | %
Stock based compensation |  |  | 50.4 | % |  |  | 6.7 | %
Change in valuation allowance |  |  | 219.8 | % |  |  | (29.8 | )%
Change in deferred balances |  |  | (80.6 | )% |  |  | — |
Other |  |  | (0.9 | )% |  |  | 0.0 | %
Effective tax rate |  |  | 197.2 | % |  |  | 2.3 | %
The Tax Cuts and Jobs Act introduced a provision to tax global intangible low-taxed income ("GILTI") of foreign subsidiaries and a measure to tax certain intercompany payments under the base erosion anti-abuse tax "BEAT" regime. For the years ended December 31, 2021 and 2020, the Company did not generate intercompany transactions that met the BEAT threshold but does have to include GILTI relating to the Company's foreign subsidiaries. The Company elected to account for GILTI as a current period cost. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Deferred tax assets and liabilities consisted of the following:
|  | December 31, 2021 |  |  | December 31, 2020 |
Net operating loss carryforwards |  | $ | 6,685,036 |  |  | $ | 12,051,503 |
Charitable Contributions |  |  | 17,339 |  |  |  | — |
Fixed Assets |  |  | (627,075 | ) |  |  | (50,411 | )
Right of Use Liability |  |  | 134,102 |  |  |  | — |
Right of Use Asset |  |  | (121,895 | ) |  |  | — |
FIN48 |  |  | 130,298 |  |  |  | — |
Stock-based compensation |  |  | 6,190,115 |  |  |  | 389,816 |
Inventory allowance |  |  | 800,443 |  |  |  | 548,118 |
Intangibles |  |  | (3,316,817 | ) |  |  | — |
Total deferred tax assets |  |  | 9,891,546 |  |  |  | 12,939,026 |
Valuation allowance |  |  | (4,018,699 | ) |  |  | (12,939,026 | )
Net Deferred Tax Assets |  |  | 5,872,847 |  |  |  | — |
At December 31, 2021, the Company has approximately $9.6 million of Federal net operating loss carryforwards and $14.9 million of state net operating loss carryforwards, which will begin to expire in 2031. The Federal and State NOLs are subject to limitation under Section 382 due to a December 2008 ownership change of greater than 50% over a three-year testing period. The ownership change resulted in approximately $4.5 million of NOLs that will not be utilized prior to expiration. The $4.5 million has been removed from the available NOL carryforward and US NOL deferred tax asset. The Company had foreign NOL carryforwards of approximately $22.4 million, some of which will begin to expire in 2023. At December 31, 2021, undistributed earnings, as well as outside basis differences, of our foreign subsidiaries was determined to be immaterial and such earnings are considered to be indefinitely reinvested. Accordingly, no taxes have been provided thereon. Determination of the amount of unrecognized deferred tax liability is not practicable due to the complexities associated with this hypothetical calculation. As required by the authoritative guidance on accounting for income taxes. the Company evaluates the realizability of deferred tax assets on a jurisdictional basis at each reporting date. Accounting for income taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of the deferred taxes will not be realized. In circumstances where there is sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizable, the Company establishes a valuation allowance. Through the year ended December 31, 2020, the Company has maintained a full valuation allowance on its worldwide net deferred tax assets. During the fourth quarter of 2021, the Company concluded that it is more likely than not that its US deferred tax assets would be realized. This conclusion was based on the US profitability and NOL utilization in 2021 and 2020 as well as future forecasts of US profitability. For the year ended December 31, 2021, the Company released its US valuation allowance for deferred tax assets of approximately $6.0 million. The Company continues to maintain a valuation allowance on its foreign net operating losses as it is not more likely than not that the losses in those specific jurisdictions will be realized. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
|  | 2021 |  |  | 2020 |
Gross unrecognized tax benefit, beginning of period |  | $ | 81,500 |  |  | $ | — |
Additions based on tax positions related to the current year |  |  | — |  |  |  | 81,500 |
Additions based on tax positions related to the prior years |  |  | 998,691 |  |  |  | — |
Reductions due to lapse in statute of limitations and settlements |  |  | — |  |  |  | — |
Gross unrecognized tax benefit, end of period |  | $ | 1,080,191 |  |  | $ | 81,500 |
The Company recognizes only those tax positions that meet the more-likely-than-not recognition threshold and establishes tax reserves for uncertain tax positions that do not meet this threshold. To the extent these unrecognized tax benefits are ultimately recognized, approximately $1.1 million will impact the Company's effective tax rate in future periods. Unrecognized tax benefits are likely to decrease by approximately $0.8 million, inclusive of interest and penalties, within the next twelve months as a result of the Company's intention to remediate certain income tax positions via voluntary disclosure. Interest and penalties associated with income tax matters are included in the provision for income taxes. As of December 31, 2021, the Company had uncertain tax positions of approximately $1.3 million, inclusive of $0.2 million of inte rest and penalties. The Company files U.S., state, and foreign income tax returns in jurisdictions with various statutes of limitations. Below is a summary of the filing jurisdictions and open tax years:
|  | Open Years
U.S. Federal |  | 2018-2020
U.S State and local |  | 2017-2020
Non-U.S. |  | 2015-2020

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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