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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Taxes  
Income Taxes

13. Income Taxes

 

Consolidated income (loss) before taxes for domestic and foreign operations consisted of the following:

  

 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

Domestic

 

$

28,754

 

$

(6,201

)

Foreign

 

 

(1,294

)

 

 

(1,776

)

Total

 

$

27,460

 

$

(7,977

)

 

The Company’s benefit from (provision for) income taxes consisted of the following:

 

 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

Current:

 

 

 

 

 

 

 

 

Federal

 

$

(6,753

)

 

$

373

State

 

 

(98

)

 

 

(9

)

Foreign

 

 

(53

)

 

 

(81

)

Total current

 

 

(6,904

)

 

 

283

Deferred:

 

 

 

 

 

 

 

 

Federal

 

 

1,132

 

 

1,326

State

 

 

(976

)

 

 

398

 

Foreign

 

 

165

 

 

 

302

 

Total

 

 

321

 

 

2,026

Change in valuation allowance

 

 

(321

)

 

 

(2,026

)

Total deferred

 

 

—


 

 

—

Tax benefit (provision)

 

$

(6,904

)

 

$

283

 

The income tax benefit (provision) differs from that computed at the federal statutory corporate income tax rate as follows:

 

 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

Tax benefit (provision) at federal statutory rate

 

$

(5,768

)

 

$

1,674

 

State income tax benefit (provision), net of federal benefit

 

 

(1,093

)

 

 

335

 

Research and development tax credits

 

 

457

 

 

 

361

 

Foreign earnings or losses taxed at different rates

 

 

(68

)

 

 

(28

)

Tax rate change

 

 

(60

)

 

 

(2

)

Other

 

 

(51

)

 

 

(31

)

Change in valuation allowance

 

 

(321

)

 

 

(2,026

)

Tax benefit (provision)

 

$

(6,904

)

 

$

283

 

The tax effects of significant temporary differences representing net deferred tax assets and liabilities consisted of the following:

 

 

 

2022

 

 

2021

 

Deferred revenue

 

$

11

 

 

$

9

 

Basis difference in intangible assets

 

 

6,604

 

 

 

1,319

 

Inventory reserve

 

 

2,258

 

 

 

2,377

 

Net operating loss carryforwards

 

 

3,075

 

 

 

7,121

 

Research and development tax credits

 

 

48

 

 

 

1,579

 

Accrued expenses

 

 

120

 

 

 

43

 

Stock-based compensation

 

 

215

 

 

 

308

 

Allowance for sales returns and doubtful accounts

 

 

81

 

 

 

83

 

Difference in property and equipment basis

 

 

(83

)

 

 

(124

)
Convertible debt

(110)

(112)
Capitalized research expenditure

922


—

Other

 

 

364

 

 

 

581

 

Total net deferred income tax asset

 

 

13,505

 

 

 

13,184

 

Less: Valuation allowance

 

 

(13,505

)

 

 

(13,184

)

Net deferred income tax asset (liability)

 

$

—

 

 

$

—

 

 

The Company has not provided for foreign withholding taxes on undistributed earnings of its non-U.S. subsidiaries since these earnings are intended to be reinvested indefinitely, in accordance with guidelines contained in ASC Topic 740, Accounting for Income Taxes. It is not practical to estimate the amount of additional taxes that might be payable on such undistributed earnings.


The Company routinely evaluates the likelihood of realizing the benefit of its deferred tax assets and may record a valuation allowance if, based on all available evidence, it determines that it is more likely than not some portion of the tax benefit will not be realized. As of December 31, 2022, the Company had an aggregate of approximately $13.5 million in deferred tax assets primarily related to intangible assets, net operating losses, tax credit carryforwards, and inventory basis differences. On a quarterly basis, the Company tests the value of deferred tax assets for impairment at the taxpaying-component level within each tax jurisdiction. Significant judgment and estimates are required in determining whether valuation allowances should be established as well as the amount of such allowances. When making such determination, consideration is given to, among other things, the following:  

 

●

sufficient taxable income within the allowed carryback or carryforward periods;

●

future reversals of existing taxable temporary differences, including any tax planning strategies that could be utilized;

●

nature or character (e.g., ordinary vs. capital) of the deferred tax assets and liabilities; and

●

future taxable income exclusive of reversing temporary differences and carryforwards.


Based on the foregoing criteria, the Company determined that it does not meet the “more likely than not” threshold that net operating losses, tax credits and other deferred tax assets will be realized. Accordingly, the Company recorded a full valuation allowance at December 31, 2022.

 

As of December 31, 2022 the Company has federal net operating loss (“NOL”) carryforwards of approximately $0.4 million (pre-tax), state NOL carryforwards of approximately 0.8 million (pre-tax) and Spain NOL carryforwards of approximately $11.6 million (pre-tax). The federal NOL carryforward expires in 2029. The Spain NOL carryforward does not expire. The state NOL carryforwards expire over various periods. 

 

Effective July 1, 2007, the Company adopted the accounting standards related to uncertain tax positions. This standard requires that tax positions be assessed using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold, and is measured at the largest amount of benefit that is greater than 50 percent likely of being realized. Uncertain tax positions must be reviewed at each balance sheet date. Liabilities recorded as a result of this analysis must generally be recorded separately from any current or deferred income tax accounts.

 

The total amount of unrecognized tax benefits at December 31, 2022 and 2021, that would favorably impact our effective tax rate if recognized was $976 and $895, respectively. As of December 31, 2022 and 2021, we accrued $44 and $16, respectively, in interest and penalties related to unrecognized tax benefits. We account for interest expense and penalties for unrecognized tax benefits as part of our income tax provision. 


Although we believe our estimates are reasonable, we can make no assurance that the final tax outcome of these matters will not be different from that which we have reflected in our historical income tax provisions and accruals. Such difference could have a material impact on our income tax provision and operating results in the period in which we make such determination.

 

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions is as follows:

 

 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

Balance - beginning of year

 

$

895

 

 

$

861

 

Additions based on tax positions related to the current year

 

 

75

 

 

 

61

 

Additions for tax positions of prior years

 

 

—

 

 

 

—

 

Reductions for tax positions of prior years

 

 

—


 

 

—

Settlements

 

 

—

 

 

(20

)

Lapse in statutes of limitations 

 

 

(8)

 

 

(7

)

Uncertain tax positions, ending balance

 

$

962

 

 

$

895

 

 

The Company’s U.S. federal income tax returns for 2018 through 2022 are subject to examination. The Company's U.S. 2018 federal income tax return is currently under examination. The Company also files in various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state, or non-U.S. income tax examinations by tax authorities for years prior to 2017.