Note

- Income taxes

Income/(loss) from continuing operations before income taxes (in thousands)	2020			2019
Domestic	$	(3,288	)	$	400
Foreign		(4,487	)		4,635
Total	$	(7,775	)	$	5,035

Components of income tax expense/(benefit) (in thousands)	2020			2019
Current
Federal	$	18		$	34
Foreign		413			1,455
State and other		105			181
Total current income tax expense		536			1,670
Deferred
Federal		—			—
Foreign		(669	)		(211	)
State and other		—			—
Total deferred income tax expense/(benefit)		(669	)		(211	)
Total income tax expense/(benefit)	$	(133	)	$	1,459

Repatriation of foreign earnings

As a result of the onetime transition tax from the U.S. Tax Cuts and Jobs Act of

2017

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

longer be subject to incremental U.S. 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. Earnings from these subsidiaries are subject to tax in their local jurisdiction, and withholding taxes in these jurisdictions are considered. As such, the Company has reduced the liability from

$0.4

million as of

January 31, 2020

$0.2

million as of

January 31, 2021

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

$22.4

million as of

January 31, 2021,

all of which has been subject to the transition tax in the United States. Unremitted earnings of

$15.7

million in the United Arab Emirates would

not

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

$6.8

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

$0.1

million, and the

$4.4

million of earnings permanently reinvested in India would be subject to withholding 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.

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)	2020			2019
Tax expense at federal statutory rate	$	(1,633	)	$	1,057
State expense, net of federal income tax effect		(97	)		147
Deferred balance adjustment		(5	)		(212	)
Domestic valuation allowance		1,807			(337	)
Domestic return to provision		(485	)		(172	)
Global Intangible Low Tax Income Inclusion		-			703
Nontaxable Paycheck Protection Program Loan Forgiveness Proceeds		(662	)		-
Permanent differences other		282			(5	)
Valuation allowance for state NOLs		183			(2	)
Differences in foreign tax rate		527			(79	)
Foreign rate change		18			(63	)
Deferred tax on unremitted earnings		(176	)		183
Foreign withholding taxes		209			274
All other, net expense		(101	)		(35	)
Total income tax expense/(benefit)	$	(133	)	$	1,459

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

1.7%

and

29.0%

2020

and

2019

, respectively. The change in the ETR from the prior year to the current year is largely due to the Company's valuation allowance against its domestic deferred tax asset and changes to the mix of income in various jurisdictions, including losses in the

zero

rate jurisdiction of the United Arab Emirates.

Components of deferred income tax assets (in thousands)	2020			2019
U.S. Federal NOL carryforward	$	8,626		$	7,209
Deferred compensation		508			401
Research tax credit		2,686			2,686
Foreign NOL carryforward		543			223
Foreign tax credit		2,580			2,580
Stock compensation		442			429
Other accruals not yet deducted		245			267
State NOL carryforward		2,678			2,567
Accrued commissions and incentives		362			354
Inventory valuation allowance		106			75
Lease liability		541			604
Other		113			127
Deferred tax assets, gross		19,430			17,522
Valuation allowance		(17,746	)		(15,937	)
Total deferred tax assets, net of valuation allowances	$	1,684		$	1,585

Components of the deferred income tax liability
Depreciation	$	(981	)	$	(1,275	)
Foreign subsidiaries unremitted earnings		(289	)		(470	)
Prepaid		(21	)		(61	)
Right of use asset		(484	)		(538	)
Total deferred tax liabilities	$	(1,775	)	$	(2,344	)

Deferred tax liability, net	$	(91	)	$	(759	)

Balance sheet classification
Long-term assets	$	823		$	293
Long-term liability		(914	)		(1,052	)
Total deferred tax liabilities, net of valuation allowances	$	(91	)	$	(759	)

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

$41.1

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

$2.7

million relates to amounts that expire at various times from

2022

2031.

The Company has a DTA foreign NOL carryforward of

$0.5

million for its subsidiaries in Saudi Arabia and India. The NOL in Saudi Arabia can be carried forward indefinitely and does

not

have a valuation allowance recorded against it while the NOL in India can be carried forward for

eight

years and does

not

have a valuation allowance recorded against it. The ultimate realization of this tax benefit is dependent upon the generation of enough 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, 2021,

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 on

January

31,

2026.

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

(In thousands)	2020			2019
Balance at beginning of the year	$	1,545		$	1,447
Increases in positions taken in a prior period		2			(26	)
Increases in positions taken in a current period		65			132
Decreases due to lapse of statute of limitations		(21	)		(8	)
Balance at end of the year	$	1,591		$	1,545

Included in the total UTP liability were estimated accrued interest and penalties of

$0.2

million and less than

$0.1

million in

January 31, 2021

and

2020,

respectively. 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, 2021

, 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, 2021

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,

$0.5

million of the amount accrued on

January 31, 2021

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, 2018,

2019

and

2020

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.