Note 7 - Income Taxes

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

7.

  Income Taxes

The following table summarizes the income tax (expense) benefit for the years ended

December 31, 2020

and

2019

(in thousands):

	2020			2019
Current:
Federal	$	-		$	-
State		(36	)		(30	)
Foreign		(142	)		(276	)
Current Total		(178	)		(306	)
Deferred:
Federal		(633	)		(36	)
State		(91	)		(58	)
Foreign		-			-
Deferred Total		(724	)		(94	)
Total	$	(902	)	$	(400	)

The income tax expense differs from the amount computed by applying the statutory federal and state income tax rates to the net income before income tax.  The following table shows the reasons for these differences (in thousands):

	2020			2019
Computed income tax benefit at statutory rate	$	789		$	944
Increase in taxes resulting from:
Permanent and other deductions, net		51			(55	)
Goodwill impairment		(120	)		(727	)
Global intangible low-taxed income		(113	)		(200	)
Foreign income taxes		10			-
State income taxes, net of federal benefit		120			(9	)
Deferred tax effects		(153	)		(13	)
Valuation allowance		(1,486	)		(340	)
Total income tax expense	$	(902	)	$	(400	)
Effective tax rate		22.3	%		9.1	%

The Company reported income tax expense of

$0.9

million for

2020

despite a pre-tax loss. The expense was primarily due to a

$1.5

million valuation allowance recorded against deferred tax assets. The valuation allowance was the result of management's assessment as of

December 31, 2020

that it was

not

more likely than

not

that the benefit of the Company's deferred tax assets would be realized primarily due to the impact of the COVID-

19

pandemic on its business. Income tax expense for

2020

was also impacted by foreign taxes in the United Kingdom related to the Company's London office that are

not

deductible for U.S. income tax purposes. In addition, the

$0.8

million goodwill impairment recorded in

2020

resulted in only a

$0.1

million tax benefit due to certain permanent tax differences.

The Company reported income tax expense of

$0.4

million for

2019

despite a pre-tax loss due primarily to a

$0.3

million valuation allowance recorded against deferred tax assets related to forfeited stock options. Income tax expense for

2019

was also impacted by foreign taxes in the United Kingdom related to the Company's London office that are

not

deductible for U.S. income tax purposes. In addition, the

$4.8

million goodwill impairment recorded in

2019

resulted in only a

$0.3

million tax benefit due to certain permanent tax differences.

The following table shows the tax effect of significant temporary differences, which comprise the deferred tax asset and liability (in thousands):

	2020			2019
Deferred tax asset:
Net operating loss carryforward	$	1,063		$	103
Foreign tax credits		483			483
Accrued expenses		396			549
Allowance for doubtful accounts		78			85
Lease liability		146			422
Share-based compensation		49			384
Other intangible assets		30			36
Interest expense limitation		23			11
Less: Valuation allowance		(1,486	)		(340	)
Total deferred income tax asset		782			1,733
Deferred tax liability:
Property and equipment		(159	)		(393	)
Right of use asset		(136	)		(391	)
Intangible assets-brand name		(1,197	)		(1,079	)
Goodwill		(288	)		(257	)
Other intangible assets		(451	)		(338	)
Total deferred income tax liability		(2,231	)		(2,458	)
Net deferred tax liability	$	(1,449	)	$	(725	)

The presentation of net deferred tax assets and liabilities are presented as noncurrent within the Company's Consolidated Balance Sheets. Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are actually paid or recovered. The Company recognizes a valuation allowance for deferred tax assets when it is more likely than

not

that these assets will

not

be realized. In making this determination, all positive and negative evidence is considered, including future reversals of existing taxable temporary differences, tax planning strategies, future taxable income, and taxable income in prior carryback years.

At

December 31, 2020

and

December 31, 2019,

the Company has

$4.3

million and

$0.5

million, respectively, of federal net operating loss carryforwards, of which

$0.5

million expires in

2037

and the remainder do

not

expire. Additionally, the Company has

$0.5

million of U.S. federal foreign tax credit carryforwards, which expire between

2023

and

2029.

The Company does

not

believe that it had any significant uncertain tax positions at

December 31, 2020

and

December 31, 2019,

nor is this expected to change within the next

twelve

months due to the settlement and expiration of statutes of limitation.

The U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted on

December 22, 2017

and introduced significant changes to U.S. income tax law. Effective in

2018,

the Tax Act reduced the U.S. statutory tax rate from

35%

to

21%

and created new taxes on certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income tax and base erosion tax, respectively. In

January 2018,

the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Company elected to treat any potential GILTI inclusions as a period cost.