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INCOME TAXES
 12 Months Ended
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 interest 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