Annual report pursuant to Section 13 and 15(d)

Note 7 - Income Taxes

Note 7 - Income Taxes
12 Months Ended
Dec. 31, 2020
Notes to Financial Statements  
Income Tax Disclosure [Text Block]



The components of income (loss) before income taxes consist of the following (in thousands):



Year Ended December 31,







  $ (1,663 )   $ (4,917 )


    3,153       (680 )

Income (loss) before income taxes

  $ 1,490     $ (5,597 )


The components of the income tax provision consist of the following (in thousands):



Year Ended December 31,






Current taxes:



  $ (512 )   $ 399  


    1       33  


    626       398  

Total current taxes

    115       830  
Deferred taxes:                
Federal     346       (381 )
State     6       (47 )
Foreign     180       (388 )
Total deferred taxes     532       (816 )

Income tax provision

  $ 647     $ 14  


A reconciliation of the reported income tax provision to the provision (benefit) that would result from applying the domestic federal statutory tax rate to pretax income (loss) is as follows (in thousands):



Year Ended December 31,






Income tax at federal statutory rate

  $ 313     $ (1,175 )

Effect of permanent differences

    121       260  

Global Intangible Low-Taxed Income

    555       364  

Change in valuation allowance

    51       106  

Foreign rate differential

    72       13  

Foreign tax credits

    (98 )     10  
Stock-based compensation     164       98  
Net operating loss carryback     (512 )      

Goodwill impairment


Other reconciling items

    (19 )     (37 )

Income tax provision

  $ 647     $ 14  


Income (loss) before income taxes and the statutory tax rate for each country that materially contributed to the foreign rate differential presented above is as follows (in thousands):



Year Ended December 31,


Statutory Tax Rate






Cayman Islands

    %   $ 2,589     $ (2,746 )

Hong Kong

    16.5 %     267       3,441  


    25.0 %     716       (1,644 )


Deferred income taxes consist of the following (in thousands):



December 31,






Deferred tax assets:

Net operating losses   $ 628     $ 1,477  
Stock-based compensation     510       925  
Operating lease liabilities     460       335  
Other     60       73  

Total deferred tax assets

    1,658       2,810  
Valuation allowance     (340 )     (289 )

Net deferred tax assets

    1,318       2,521  

Deferred tax liabilities:

Operating lease assets     (438 )     (313 )
Foreign deferreds     (216 )     (202 )
Prepaids     (113 )     (109 )
Other     (36 )     (60 )

Total deferred tax liabilities

    (803 )     (684 )

Net deferred tax assets

  $ 515     $ 1,837  


The effective income tax rate for the year ended December 31, 2020 includes an estimate for the Global Intangible Low-Taxed Income (“GILTI”) inclusion along with recording the effect of the U.S. Coronavirus Aid, Relief, and Economic Security (“CARES”) Act enacted on  March 27, 2020. The CARES Act makes broad changes to the Internal Revenue Code of 1986, as amended, including, but not limited to, the ability to carry net operating losses generated in tax years 2018, 2019 or 2020 back to the each of the five tax years preceding the tax year of such loss.  The effective income tax rate for the year ended December 31, 2019 was impacted by permanent differences including a true-up of the GILTI provision for the tax year ended December 31, 2018 and goodwill impairment for the year ended December 31, 2019.


As of December 31, 2020, the Company does not have a valuation allowance against its U.S. deferred tax assets. The Company analyzed all sources of available income and determined that they are more likely than not to realize the tax benefits of their deferred assets. As of December 31, 2020, the Company has a valuation allowance against deferred taxes in certain foreign jurisdictions with an overall net operating loss. The valuation allowance will be reduced at such time as management believes it is more likely than not that the deferred tax assets will be realized. Any reductions in the valuation allowance will reduce future income tax provision.


As of December 31, 2020, the Company no longer has U.S. federal net operating losses due to its filing in  August 2020 to carry back $3.6 million of losses generated in the tax year ended  December 31, 2019 to offset taxable income from the tax year ended  December 31, 2016The Company has U.S. state net operating loss carryforwards of $3.5 million that begin expiring in 2039. At December 31, 2020, the Company has foreign net operating loss carryforwards of approximately $2.8 million in various jurisdictions with various expirations.


As a result of capital return activities, the Company determined that a portion of its current undistributed foreign earnings is no longer deemed reinvested indefinitely by its non-U.S. subsidiaries. For state income tax purposes, the Company will continue to periodically reassess the needs of its foreign subsidiaries and update its indefinite reinvestment assertion as necessary. To the extent that additional foreign earnings are not deemed permanently reinvested, the Company expects to recognize additional income tax provision at the applicable state corporate income tax rate(s). As of December 31, 2020, the Company has not recorded a state deferred tax liability for earnings that the Company plans to repatriate out of accumulated earnings in future periods because all earnings as of December 31, 2020 have already been repatriated. Due to the U.S. Tax Cuts and Jobs Act in 2017, repatriation from foreign subsidiaries will be offset with a dividends received deduction, resulting in little to no impact on federal tax expense. All undistributed earnings in excess of 50% of current earnings on an annual basis are intended to be reinvested indefinitely as of December 31, 2020.


The Company and its subsidiaries file tax returns in the United States, California, New Jersey and Texas and various foreign jurisdictions. During the fourth quarter of 2018, the Company was notified that it was selected for audit of the 2016 tax year by the U.S. Internal Revenue Service. The audit was expanded to include the 2017 and 2018 tax years, and a request has been submitted to also include the 2019 tax year. For purposes of this audit, fiscal years since 2007 are open for examination by tax authorities as a result of net operating loss carryovers from older years being used to offset income in recent tax years. No adjustments have been proposed at this time. The Company is no longer subject to state income tax examinations for years prior to 2016.