The domestic and foreign components of the income (loss) before expense for income taxes were as follows:

	Years Ended December 31,
	2021			2020
Domestic	$	1,359		$	4,447
Foreign		(1,167	)		(1,001	)
	$	192		$	3,446

	Years Ended December 31,
	2021		2020
Current:
Federal	$	0	$	0
State		33		29
Foreign		6		0
		39		29
Deferred:
Federal		0		0
State		0		0
Foreign		0		0
		0		0
Total	$	39	$	29

A reconciliation of the expense for income taxes at the federal statutory rate compared to the expense at the effective tax rate is as follows:

	Years Ended December 31
	2021			2020
Statutory federal income tax rate		21	%		21	%
State income tax, net of federal benefit		56	%		7	%
Tax effect of permanent differences		56	%		1	%
Change in valuation allowance		16	%		-19	%
Effective state rate change to deferred tax assets		8	%		0	%
Stock-based compensation windfalls		-53	%		-1	%
Foreign income taxed at different rates		53	%		1	%
Research and development credits		-134	%		-9	%
Other		-3	%		0	%
		20	%		1	%

The Company recorded net income tax expense of $39 for the year ended December 31, 2021. The 2021 effective rate differed from the Federal rate of 21% primarily because the Company has a full valuation allowance on its deferred tax assets. The Company’s valuation allowance is due to the uncertainty regarding the utilization of the deferred tax assets.

The Company recorded net income tax expense of $29 for the year ended December 31, 2020. The 2020 effective tax rate differed from the Federal rate of 21% primarily because the Company had a full valuation allowance on its deferred tax assets.

Under the U.S. tax guidelines, a U.S. shareholder of controlled foreign corporations (“CFCs”) is required to include in gross income the amount of its global intangible low-taxed income (“GILTI”). Generally, the GILTI inclusion is the U.S. shareholder’s allocable share of certain income earned through its CFCs (“net CFC tested income”) in excess of a deemed 10% return on the shareholder’s allocable share of certain of the CFC’s depreciable, tangible assets less certain interest expense items (“net deemed tangible income return”). The Company elected to treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the period cost method). The amount included for GILTI did not have a significant impact on the Company’s tax provision for the years ended December 31, 2021 or December 31, 2020.

The Company recognizes all interest and penalties as income tax expense. There was no income tax expense related to interest and penalties for the years ended December 31, 2021 or 2020.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

	December 31,
	2021			2020
Deferred Tax Assets:
Net operating loss carryforwards	$	6,874		$	4,138
Amortization		2,346			2,942
Federal, foreign, and state credits		2,666			2,399
Inventory reserves		1,076			995
Deferred gain		863			866
Deferred rent		476			498
Stock compensation		498			465
Accrued vacation		276			264
Other		417			401
Gross deferred tax assets		15,492			12,968
Valuation allowance		(15,258	)		(12,938	)
Net deferred tax asset		234			30
Deferred Tax Liabilities:
Depreciation		(234	)		(30	)
Net Deferred Tax Assets	$	0		$	0

At December 31, 2021, the Company had gross deferred tax assets of $15.5 million, deferred tax liabilities of $0.2 million and a valuation allowance of $15.3 million. At December 31, 2020, the Company had gross deferred tax assets of $13.0 million, deferred tax liabilities of $30, and a valuation allowance of $12.9 million. At December 31, 2021 and 2020 respectively, the deferred tax assets included $2.3 million and $2.9 million related to intangible assets acquired under purchase accounting which are amortized for tax purposes over 15 years, but for shorter periods under generally accepted accounting principles.

The deferred tax assets net of deferred tax liabilities consisted of the following balances by tax jurisdiction:

	December 31,
	2021			2020
United States	$	11,941		$	12,157
China		1,169			781
Sweden		2,148			0
Net Deferred Tax Assets before valuation allowance	$	15,258		$	12,938
Valuation Allowance		(15,258	)		(12,938	)
Net Deferred Tax Assets	$	0		$	0

On a regular basis, the Company evaluates the recoverability of deferred tax assets and the need for a valuation allowance. Such evaluations involve the application of significant judgment. The Company considers multiple factors in its evaluation of the need for a valuation allowance. The Company’s net deferred tax assets consist of assets related to net operating losses and credits as well as assets related to timing differences. The Company’s net operating losses and credits have a finite life primarily based on the 20-year carryforward rule for federal net operating losses (NOLs) generated through December 31, 2017. The timing differences have a ratable reversal pattern over approximately 10 years. Under the new rules enacted with the Tax Act, tax losses incurred in 2018 and future periods will not expire, thereby extending the period by which the Company’s deferred tax assets can be realized. However, these post 2017 losses are subject to a limitation of 80% of current taxable income.

In accordance with ASC 740 “Accounting for Income Taxes” (“ASC 740”), the Company evaluates deferred income tax assets quarterly to determine if valuation allowances are required or should be adjusted. ASC 740 requires that companies assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence, both positive and negative, using a “more likely than not” standard. At December 31, 2021 and December 31, 2020, the Company had a full valuation allowance on its deferred tax assets in its three country jurisdictions. For U.S. tax purposes, the Company recorded book income during 2021 but generated a tax loss and its earnings were below its projections. While the Company has recorded pretax book income for the prior three years and believes its financial outlook remains positive, it did not meet expectations in 2021 for revenues or earnings and the recovery from the COVID-19 pandemic has created a high level of uncertainty. Because of difficulties with forecasting financial results historically, and due to the uncertainties associated with the COVID-19 pandemic, the Company maintained a full valuation allowance on its deferred tax assets at December 31, 2021. The Company’s performance versus its projections in both of the prior two years are considered significant negative evidence that is difficult to overcome on a “more likely than not” standard through objectively verifiable

data. While the Company believes its financial outlook remains positive, under the accounting standards, objective verifiable evidence will have greater weight than subjective evidence such as the Company’s projections for future growth.

Based on an evaluation in accordance with the accounting standards, as of December 31, 2021, the Company has a valuation allowance of $11.9 million which was recorded against the net U.S. deferred tax assets, a valuation allowance of $1.2 million recorded against the net China deferred tax assets, and $2.2 million recorded against the net Sweden deferred tax assets in order to measure the deferred tax assets that are more likely than not to be realized based on the weight of all the available evidence.

Until an appropriate level of profitability is attained, the Company expects to maintain a full valuation allowance on its U.S. net deferred tax assets. Any U.S. or foreign tax benefits or tax expense recorded on its consolidated statement of income will be offset with a corresponding valuation allowance until such time that the Company changes its determination related to the realization of deferred tax assets. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such a determination is made.

The analysis that the Company prepared to determine the valuation allowance required significant judgment and assumptions regarding future market conditions, as well as forecasts for profits, taxable income, and taxable income by jurisdiction. Due to the sensitivity of the analysis, changes to the assumptions in subsequent periods could have a material effect on the valuation allowance.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	December 31,
	2021		2020
Beginning of period	$	808	$	759
Addition related to tax positions in current year		40		49
End of period	$	848	$	808

Because the Company has a full valuation allowance against its deferred tax assets, the reversal of these unrecognized tax benefits would have no impact on its effective tax rate. The Company does not anticipate that its unrecognized tax benefits will significantly increase or decrease within the next twelve months.

The Company and its subsidiaries file income tax returns in the U.S. and various foreign jurisdictions. The Company’s U.S. federal tax returns remain subject to examination for 2017 and subsequent periods, although loss carryovers generated in prior years remain subject to examination. The Company’s state tax returns remain subject to examination for 2015 and subsequent periods. The Company’s foreign tax returns in China remain subject to examination for 2011 and subsequent periods.

At December 31, 2021, the Company has a federal net operating loss carryforward of $5.3 million that expires between 2031 and 2037 and a Federal net operating loss carryforward of $8.2 million with no expiration. The Company has state net operating loss carryforwards of $15.4 million that expire between 2022 and 2038. Additionally, the Company has $1.8 million of federal research credits that expire between 2030 and 2041 and $1.5 million of state research credits with no expiration. The Company has a China net operating loss carryforward of $2.2 million that expires between 2025 and 2027 and of China research credits of $0.4 million that expire between 2024 and 2027. The Company has a Sweden net operating loss carryforward of $11.8 million with no expiration.

The Company has recorded income tax related to the deemed dividend of earnings for its subsidiary in China. The Company considers such earnings permanently reinvested. Upon repatriation of these earnings, the Company would be subject to local withholding taxes.

On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security Act” (CARES Act) was signed into law. The CARES Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. Under the CARES Act, the Company deferred the employer portion of social security taxes in 2020 and applied for a refund of its Alternative Minimum Tax credit. At December 31, 2021 and 2020, respectively, the Company had deferred payroll taxes of $0.2 and $0.5 million of payroll taxes. The Company recorded

a deferred tax asset for the payroll tax liability that was not deductible for income tax purposes. The remaining payroll taxes will be deferred until December 31, 2022.