Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

Income (loss) before income tax provision for domestic and non-U.S. operations is as follows (in thousands):

	For the Year Ended December 31,
	2023			2022			2021
Income (loss) from operations before income tax provision:
U.S.	$	(7,864	)	$	(2,710	)	$	(1,189	)
Foreign		2,539			2,419			2,837
Income (loss) from operations before income tax provision	$	(5,325	)	$	(291	)	$	1,648

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

	For the Year Ended December 31,
	2023			2022		2021
Deferred:
Federal	$	—		$	—	$	—
State		—			—		—
Foreign		—			—		—
	$	—		$	—	$	—
Current:
Federal	$	—		$	—	$	—
State		(54	)		3		(24	)
Foreign		218			98		52
Total current		164			101		28
Total income tax provision	$	164		$	101	$	28

Significant items making up deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2023			2022
Deferred tax assets:
Allowances not currently deductible for tax purposes	$	803		$	777
Net operating loss carryforwards		35,252			41,730
Operating lease liabilities		834			1,018
General carryforwards		16,844			16,407
Stock-based compensation		1,272			1,471
Accrued and other		4,270			2,090
		59,275			63,493
Less valuation allowance		(56,045	)		(59,996	)
		3,230			3,497
Deferred tax liabilities:
Depreciation and amortization		(660	)		(867	)
Operating lease right-of-use assets		(493	)		(693	)
State income taxes		(2,077	)		(1,937	)
		(3,230	)		(3,497	)
Net deferred tax asset	$	—		$	—

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2023. Such objective evidence limits the ability to consider other subjective evidence such as the Company’s projections for future growth.

A valuation allowance of $56.0 million and $60.0 million, as of December 31, 2023 and 2022, respectively, has been recorded to offset the related net deferred tax assets as the Company is unable to conclude that it is more likely than not that such deferred tax assets will be realized. The net deferred tax liabilities are primarily from foreign tax liabilities as well as intangibles acquired as a result of the acquisitions, which are not deductible for tax purposes.

The following table summarizes the Company’s net deferred tax assets valuation allowance activity (in thousands):

	Year Ended December 31,
	2023			2022			2021
Balance at beginning of period	$	59,996		$	62,441		$	62,699
Increases in valuation allowance		1,407			—			459
Decreases in valuation allowance		(5,358	)		(2,445	)		(717	)
Balance at end of period	$	56,045		$	59,996		$	62,441

Section 951A under the Tax Cuts and Jobs Act (the “Act”) requires a U.S. shareholder of a controlled foreign corporation to include in taxable income the shareholder’s share of global intangible low-taxed income (“GILTI”) for the year. The Company has determined that the Section 951A provisions do apply to its operations and relationships with its controlled foreign corporations (“CFCs”). The Company recorded $0.4 million, $2.0 million and $2.5 million of GILTI income in 2023, 2022 and 2021, respectively. The Act also changed the treatment of Section 174 research and experimental costs beginning January 1, 2022. Historically, taxpayers had the option of expensing Section 174 costs currently or amortizing over five years. The Act provision requires taxpayers to now capitalize such costs and amortize over five years for research conducted domestically or fifteen years if conducted outside of the U.S.

As of December 31, 2023, the Company had net operating loss carryforwards of $89.0 million for federal, $49.8 million for state and $52.6 million for foreign income tax purposes. Certain of the Company’s federal, state and foreign loss carryforwards have started expiring and will continue to expire through 2043 if not utilized.

The Tax Reform Act of 1986 (the “Tax Reform Act”) limits the use of net operating loss and tax credit carryforwards in certain situations where changes occur in stock ownership. The Company completed its acquisition of Bluehill ID AG on January 4, 2010, which resulted in a stock ownership change as defined by the Tax Reform Act. The Company also completed its acquisition of 3VR Security, Inc. on February 14, 2018, which resulted in a stock ownership change as defined by the Tax Reform Act. These transactions resulted in limitations on the annual utilization of federal and state net operating loss carryforwards and credits. As a result, the Company reevaluated its available deferred tax assets, and the loss carryforward and credit amounts, excluding the valuation

allowance presented above have been adjusted for the limitation resulting from the change in ownership in accordance with the provisions of the Tax Reform Act.

The income tax provision reconciled to the amount computed by applying the statutory federal tax rate to the income (loss) before income tax provision is as follows (in thousands):

	For the Year Ended December 31,
	2023			2022			2021
Income tax provision (benefit) at statutory federal tax rate of 21%	$	(1,119	)	$	(61	)	$	345
State taxes, net of federal benefit		(42	)		2			(19	)
Foreign taxes provisions provided for at rates other than U.S. statutory rate		(315	)		(410	)		(494	)
Section 951(A) inclusion		83			428			523
Stock options		467			(218	)		(443	)
Change in valuation allowance		1,041			274			700
Permanent differences		50			86			42
PPP loan forgiveness		—			—			(619	)
Other		(1	)		—			(7	)
Total income tax provision	$	164		$	101		$	28

The Company applies the provisions of, and accounted for uncertain tax positions in accordance with, ASC 740. ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

On August 16, 2022, the President of the United States signed into law the Inflation Reduction Act ("H.R. 5376"), which contained various tax law changes, including the imposition of an AMT on “large” corporations, a tax on certain stock buybacks, and other targeted revenue raisers. The Company analyzed the provisions of H.R. 5376 and currently does not expect this law to have any material effect on the Company.

A reconciliation of the beginning and ending amount of unrecognized tax benefits with an impact on the Company’s consolidated balance sheets or statements of comprehensive income (loss) is as follows (in thousands):

	December 31,
	2023			2022
Balance at beginning of period	$	2,279		$	2,276
Additions based on tax positions related to the current year		1			1
Additions for tax positions of prior years		—			2
Reductions in prior year tax positions		(1	)		—
Balance at end of period	$	2,279		$	2,279

While timing of the resolution and/or finalization of tax audits is uncertain, the Company does not believe that its unrecognized tax benefits as presented in the above table would materially change in the next 12 months.

As of December 31, 2023 and 2022, the Company recognized liabilities for unrecognized tax benefits of $2.3 million and $2.3 million, respectively. Since there was a full valuation allowance against these deferred tax assets, there was no impact on the Company’s consolidated balance sheets or statements of comprehensive income (loss) for the years ended December 31, 2023, 2022 and 2021. Also the subsequent recognition, if any, of these previously unrecognized tax benefits would not affect the effective tax rate. Such recognition would result in adjustments to other tax accounts, primarily deferred taxes. The amount of unrecognized tax benefits which, if recognized, would not affect the Company's tax rate as of December 31, 2023 and 2022, respectively.

The Company recognizes interest accrued related to unrecognized tax benefits and penalties as in the income tax provision. For the year ended December 31, 2023, the Company recorded an increase in accrued interest of $1,000 related to the unrecognized tax benefits noted above. As of December 31, 2023, the Company has recognized a total liability for penalties of $4,000 and interest of $8,000. For the year ended December 31, 2022, the Company recorded an increase in accrued penalties of $2,000 and an increase in accrued interest of $1,000 related to the unrecognized tax benefits noted above. As of December 31, 2022, the Company had recognized a total liability for penalties of $4,000 and interest of $7,000.

The Company files U.S. federal, U.S. state and foreign tax returns. The Company generally is no longer subject to tax examinations for years prior to 2018. However, if loss carryforwards of tax years prior to 2017 are utilized in the U.S., these tax years may become subject to investigation by the tax authorities.