Note

- Income taxes

Income from continuing operations before income taxes (in thousands)	2019		2018
Domestic	$	400	$	(2,331	)
Foreign		4,635		3,931
Total	$	5,035	$	1,600

Components of income tax expense (in thousands)	2019			2018
Current
Federal	$	34		$	48
Foreign		1,455			1,695
State and other		181			196
Total current income tax expense		1,670			1,939
Deferred
Federal		—			—
Foreign		(211	)		211
State and other		—			—
Total deferred income tax expense/(benefit)		(211	)		211
Total income tax expense	$	1,459		$	2,150

Repatriation of foreign earnings

As a result of the provisions from the U.S. Tax Cuts and Jobs Act of

2017

(“Tax Act”), the Company expects that future distributions from foreign subsidiaries will

longer be subject to incremental U.S. federal tax as they will either be remittances of previously taxed earnings and profits or eligible for a full dividends received deduction. Current and future

earnings in the Company's subsidiaries in Canada and Egypt, are

not

permanently reinvested, and earnings in its Indian subsidiary are partially permanently reinvested. The earnings from these subsidiaries will be subject to tax in their local jurisdiction, and the impact of the India dividend distribution tax, Canadian withholding taxes and Egyptian withholding taxes will be considered. As such, the Company has accrued a liability of

$0.2

million in

2019

related to these taxes.

U.S. income and foreign withholding taxes have

not

been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the United States. The Company intends to permanently reinvest the undistributed earnings of its Middle Eastern subsidiaries. The Middle Eastern subsidiaries have unremitted earnings of

$26.8

million as of

January 31, 2020

$25

million of which has been subject to the transition tax in the U.S. Unremitted earnings of

$16.1

million in the United Arab Emirates would

not

be subject to withholding tax in the event of a distribution,

$10.7

million of unremitted earnings in Saudi Arabia would be subject to withholding tax of

$2.1

million, and the

$4.6

million of earnings permanently reinvested in India would be subject to dividend distribution tax of

$0.9

million. The Company has

not

recorded a deferred tax liability related to any financial reporting basis over tax basis related to the investment in these foreign subsidiaries as it is

not

practical to estimate.

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The difference between the provision for income taxes and the amount computed by applying the U.S. Federal statutory rate of

21%

was as follows:

(In thousands)	2019			2018
Tax expense at federal statutory rate	$	1,057		$	340
State expense, net of federal income tax effect		147			145
Deferred balance adjustment		(212	)		—
Domestic valuation allowance		(337	)		(2,612	)
Domestic return to provision		(172	)		2,617
Global Intangible Low Tax Income Inclusion		703			438
Permanent differences other		(5	)		126
Valuation allowance for state NOLs		(2	)		76
Differences in foreign tax rate		(79	)		334
Foreign rate change		(63	)		—
Deferred tax on unremitted earnings		183			413
Foreign withholding taxes		274			252
All other, net expense		(35	)		21
Total income tax expense	$	1,459		$	2,150

The Company's worldwide effective tax rates ("ETR") were

29.0%

and

134.4%

2019

and

2018

, respectively. The change in the ETR from the prior year to the current year was largely due to the overall increase in worldwide pre-tax book income in low tax and non-taxable jurisdictions. Additional factors included the Company's valuation allowance against its domestic deferred tax asset and the Company's change in the amounts of income in various jurisdictions between the years. The unusually large ETR incurred in

2018

was primarily due to the overall low pre-tax book income. Due to this, even relatively small changes to ordinary income have a large impact to the ETR. The

$2.6

million benefit related to the

2018

domestic return to provision was a result of finalizing the accounting for the tax effect of the Tax Act related to the

one

-time repatriation of foreign earnings, which was offset by a valuation allowance.

Components of deferred income tax assets (in thousands)	2019			2018
U.S. Federal NOL carryforward	$	7,209		$	7,480
Deferred compensation		401			382
Research tax credit		2,686			2,703
Foreign NOL carryforward		223			390
Foreign tax credit		2,580			2,305
Stock compensation		429			459
Other accruals not yet deducted		328			349
State NOL carryforward		2,567			2,552
Accrued commissions and incentives		354			643
Inventory valuation allowance		75			112
Other		132			159
Deferred tax assets, gross		16,984			17,534
Valuation allowance		(15,937	)		(16,199	)
Total deferred tax assets, net of valuation allowances	$	1,047		$	1,335

Components of the deferred income tax liability
Depreciation	$	(1,275	)	$	(1,734	)
Foreign subsidiaries unremitted earnings		(470	)		(498	)
Prepaid		(61	)		(80	)
Total deferred tax liabilities	$	(1,806	)	$	(2,312	)

Deferred tax liability, net	$	(759	)	$	(977	)

Balance sheet classification
Long-term assets	$	293		$	458
Long-term liability		(1,052	)		(1,435	)
Total deferred tax liabilities, net of valuation allowances	$	(759	)	$	(977	)

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The Company has a gross U.S. Federal operating loss carryforward of

$33.8

million that will begin to expire in the year ending

January

31,

2031.

The deferred tax asset ("DTA") for state net operating loss ("NOL") carryforwards of

$2.6

million relates to amounts that expire at various times from

2022

2031.

The Company has a DTA foreign NOL carryforward of

$0.2

million for its subsidiary in Saudi Arabia that can be carried forward indefinitely and does

not

have a valuation allowance recorded against it. The ultimate realization of this tax benefit is dependent upon the generation of sufficient operating income in the foreign tax jurisdictions.

The Company periodically reviews the adequacy of its valuation allowance in all of the tax jurisdictions in which it operates, evaluates future sources of taxable income and tax planning strategies and

may

make further adjustments based on management's outlook for continued profits in each jurisdiction.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the domestic cumulative loss incurred leading up to the period ended

January 31, 2013.

Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, as of

December 31, 2013,

a full valuation allowance was recorded against the domestic deferred tax assets as the Company has determined that they are

not

more likely than

not

to be realized based upon the available evidence. As of

January 31, 2020,

the Company has

not

released the valuation allowance as the objective negative evidence in the form of cumulative losses continues to exist. The amount of the domestic deferred tax assets considered realizable, however, could be increased if objective negative evidence in the form of cumulative losses is

longer present.

The Company has a deferred tax asset of

$2.6

million for U.S. foreign tax credits after considering the impact of the repatriated foreign earnings and the

one

-time transition tax. The foreign tax credit deferred tax asset is fully offset with a valuation allowance. The excess foreign tax credits are subject to a

ten

-year carryforward and will begin to expire in

January

31,

2026.

The following table summarizes uncertain tax position ("UTP") activity, excluding the related accrual for interest and penalties:

(In thousands)	2019			2018
Balance at beginning of the year	$	1,447		$	1,301
Increases in positions taken in a prior period		(26	)		9
Increases in positions taken in a current period		132			147
Decreases due to lapse of statute of limitations		(8	)		(10	)
Balance at end of the year	$	1,545		$	1,447

Included in the total UTP liability were estimated accrued interest and penalty of less than

$0.1

million in both

January 31, 2020

and

January 31, 2019

. These non-current income tax liabilities are recorded in other long-term liabilities in the consolidated balance sheet and recognized as an expense during the period. The Company's policy is to include interest and penalties in income tax expense. On

January 31, 2020

, the Company did

not

anticipate any significant adjustments to its unrecognized tax benefits within the next

twelve

months. Included in the balance on

January 31, 2020

were amounts offset by deferred taxes (i.e. temporary differences) or amounts that could be offset by refunds in other taxing jurisdictions (i.e., corollary adjustments). Upon reversal,

$0.4

million of the amount accrued on

January 31, 2020

would impact the future ETR.

The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. Tax years related to

January 31, 2017,

2018

and

2019

are open for federal and state tax purposes. In addition, federal and state tax years

January 31, 2002

through

January 31, 2009

are subject to adjustment on audit, up to the amount of research tax credit generated in those years. Any NOL carryover can still be adjusted by the Internal Revenue Service in future year audits.

The Company's management periodically estimates the probable tax obligations of the Company using historical experience in tax jurisdictions and informed judgments. There are inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which the Company transacts business. The judgments and estimates made at a point in time

may

change based on the outcome of tax audits, as well as changes to or further interpretations of regulations. If such changes take place, there is a risk that the tax rate

may

increase or decrease in any period. Tax accruals for tax liabilities related to potential changes in judgments and estimates for federal, foreign and state tax issues are included in other long-term liabilities on the consolidated balance sheet.

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