XML 31 R18.htm IDEA: XBRL DOCUMENT v3.22.1
Income taxes
 12 Months Ended
Dec. 31, 2021
Income taxes [Abstract]  
Income taxes
11. Income taxes

The components of the income tax benefit are as follows:

   
December 31,
  
(In thousands)
  
2021
    
2020
  
Current:
            
Federal
  
$
26
    
$
(2,141
)
State
    
51
      
17
  
Foreign
    
2
      
(48
)
     
79
      
(2,172
)
Deferred:
                
Federal
    
(2,086
)
    
(483
)
State
    
(62
)
    
(36
)
Foreign
    
(2
)
    
152
  
     
(2,150
)
    
(367
)
Income tax benefit
  
$
(2,071
)
  
$
(2,539
)

Our effective tax rates were 33.3% and 31.1% for 2021 and 2020, respectively.  The tax benefit recorded for 2021 included the recognition of the gain on the forgiveness of the PPP Loan which is not taxable.  The effective tax rate for 2020 included the impact of the net operating loss (“NOL”) that we carried back to prior years.  The CARES Act permits 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.  We generated a NOL for 2020 which was carried back to tax years that had a federal statutory tax rate of 34% compared to 21% in 2020 and resulted in a tax refund of $2.2 million that was received in October 2021 causing a significant reduction in prepaid income taxes at December 31, 2021 compared to December 31, 2020.

At December 31, 2021, we have $2.0 million of federal net operating loss carryforwards and $78 thousand of state net operating loss carryforwards, $901 thousand in R&D credit carryforwards, and no state tax credit carryforwards.  Foreign loss before taxes was $404 thousand and $468 thousand in 2021 and 2020, respectively.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the Consolidated Financial Statements.  Our deferred tax assets and liabilities were comprised of the following:

 
December 31,
  
(In thousands)
  
2021
    
2020
  
Deferred tax assets:
            
Federal net operating losses
  
$
1,976
    
$
–
  
Foreign net operating losses
    
624
      
563
  
Depreciation
    
306
      
302
  
Inventory reserves
    
710
      
719
  
Deferred revenue
    
24
      
47
  
Warranty reserve
    
22
      
31
  
Stock compensation expense
    
796
      
731
  
Other accrued compensation
    
308
      
388
  
R&D credit carryforward
    
901
      
460
  
Other liabilities and reserves
    
250
      
394
  
Gross deferred tax assets
    
5,917
      
3,635
  
Valuation allowance
    
(733
)
    
(659
)
Net deferred tax assets
    
5,184
      
2,976
  
                 
Deferred tax liabilities:
                
Other
    
43
      
37
  
Net deferred tax liabilities
    
43
      
37
  
Total net deferred tax assets
  
$
5,141
    
$
2,939
  

As of December 31, 2021, a valuation allowance of $733 thousand has been established for foreign net operating loss carryforwards that are not expected to be used. The following table summarizes the activity recorded in the valuation allowance on the deferred tax assets:

   
Year Ended December 31,
  
(In thousands)
  
2021
    
2020
  
Balance, beginning of period
  
$
659
    
$
444
  
Additions charged to income tax provision
    
74
      
215
  
Balance, end of period
  
$
733
    
$
659
  

Differences between the U.S. statutory federal income tax rate and our effective income tax rate are analyzed below:

   
Year Ended December 31,
  
 
2021
    
2020
  
             
Federal statutory rate
    
21.0
%
    
21.0
%
PPP loan forgiveness
    
7.4
      
–
  
R&D credit
    
7.1
      
4.2
  
Stock award excess tax benefit
    
0.3
      
(0.3
)
State income taxes, net of federal income taxes
    
0.1
      
0.2
  
U.S. corporate tax rate change
    
–
      
9.5
  
Business meals and entertainment
    
(0.2
)
    
0.1
  
Miscellaneous permanent items
    
(0.3
)
    
–
  
Uncertain tax positions
    
(0.4
)
    
(0.2
)
Stock option cancellations
    
(0.6
)
    
(0.5
)
Valuation allowance and tax accruals
    
(1.2
)
    
(2.6
)
Other
    
0.1
      
(0.3
)
Effective tax rate
    
33.3
%
    
31.1
%

We had $144 thousand and $121 thousand of total gross unrecognized tax benefits at December 31, 2021 and 2020, respectively that, if recognized, would favorably affect the effective income tax rate in any future periods.  We are not aware of any events that could occur within the next twelve months that could cause a significant change in the total amount of unrecognized tax benefits.  A tabular reconciliation of the gross amounts of unrecognized tax benefits at the beginning and end of the year is as follows:

 
December 31,
  
(In thousands)
  
2021
    
2020
  
Balance, beginning of period
  
$
121
    
$
107
  
Tax positions taken during the current period
    
47
      
41
  
Lapse of statute of limitations
    
(24
)
    
(27
)
Balance, end of period
  
$
144
    
$
121
  

We expect $28 thousand of the $144 thousand of unrecognized tax benefits will reverse in 2022 upon the expiration of the statute of limitations.

We recognize interest and penalties related to uncertain tax positions in the income tax provision.  We have accrued interest and penalties related to uncertain tax positions of $20 thousand and $19 thousand as of December 31, 2021 and 2020, respectively.

We are subject to U.S. federal income tax as well as income tax of certain state and foreign jurisdictions.  We have substantially concluded all U.S. federal income tax, state and local, and foreign tax matters through 2017.  However, our federal tax returns for the years 2018 through 2021 remain open to examination. Various state and foreign tax jurisdiction tax years remain open to examination as well, though we believe that any additional assessment would be immaterial to the Consolidated Financial Statements.