Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Information pertaining to the Company’s income (loss) before income taxes and the applicable provision for income taxes is as follows:

	December 31,
	2021		2020
Income (loss) before income taxes:
Domestic income (loss)	$	533,225	$	867,361
Foreign income (loss)	196,870		201,046
Total income (loss) before income taxes:	730,095		1,068,407
Provision (benefit) for income taxes:
Current:
Federal	$	—	$	(116,504)
State and local	(1,080)		10,928
Foreign	266,205		82,437
	265,125		(23,139)
Deferred:
Federal	$	1,785	$	131,036
State and local	8,148		(6,209)
Foreign	251,705		(116,007)
	261,638		8,820
Total provision (benefit) for income taxes:	$	526,763	$	(14,319)

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, was enacted March 27, 2020. Among the business provisions, the CARES Act provided for various payroll tax incentives, changes to net operating loss carryback and carryforward rules, business interest expense limitation increases, and bonus depreciation on qualified improvement property. Additionally, the Consolidated Appropriations Act of 2021 was signed on December 27, 2020 which provided additional COVID relief provisions for businesses. The Company has evaluated the impact of both the Acts and has determined that any impact is not material to its financial statements.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	December 31,
	2021		2020
Deferred Tax Assets:
Allowance for receivables	$	20,695	$	34,820
Deferred revenue	500,841		352,087
Share-based compensation	49,191		23,647
Accrued expenses and other liabilities	93,361		331,497
Domestic net operating loss carryforwards	19,516,151		20,072,283
Foreign net operating loss carryforwards	275,671		187,114
Tax credit carryforwards	3,106,022		3,106,022
Capital loss carryforwards	34,736		34,254
Fixed assets	6,491		155,942
Lease liability	—		134,522
Intangibles	87,796		113,932
Sub-total	23,690,955		24,546,120
Valuation allowance	(23,257,645)		(23,222,032)
Total Deferred Tax Assets	433,310		1,324,088
Deferred Tax Liabilities:
Prepaid commissions and other	(57,438)		(113,706)
Tax method changes	—		(429,836)
Right of use asset	—		(105,116)
Deferred state income tax	(387,655)		(408,089)
Foreign withholding taxes	(458,526)		(449,816)
Total Deferred Tax Liabilities	(903,619)		(1,506,563)
Net Deferred Tax Liabilities	$	(470,309)	$	(182,475)

    As of each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. In assessing the Company’s ability to recover its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Based on these factors the Company determined that its U.S. deferred tax assets are not realizable on a more-likely-than-not basis and has recorded a full valuation allowance against such net deferred tax assets. The Company’s valuation allowance increased by $35 thousand due to operations.

As of December 31, 2021, the Company had approximately $84.5 million of federal net operating loss carryforwards, of which $79.9 million will begin to expire beginning in 2030, if not utilized, and the remaining $4.6 million of which can be carried forward indefinitely subject to 80% of taxable income. As of December 31, 2021, the Company had approximately $3.1 million of research and development tax credit carryforwards which expire at various dates beginning in 2023, if not utilized. Utilization of the net operating losses and credit carryforwards may be subject to a substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986. The annual limitation may result in the expiration of net operating losses and credit carryforwards before utilization.

    The effective tax rate before income taxes varies from the current statutory federal income tax rate as follows:

	December 31,
	2021		2020
Tax at Federal statutory rate	$	153,320	$	224,366
Increase (reduction) in income taxes resulting from:
State and local taxes	(4,052)		242,992
Non-deductible expenses	22,104		17,416
GILTI	6,708		—
PPP loan forgiveness	(158,340)		—
Net effect of foreign operations	248,931		(96,210)
Uncertain tax positions	(1,499)		(1,706)
Change in valuation allowance	35,614		(474,956)
Foreign withholding taxes	206,323		19,299
Other	17,654		54,480
	$	526,763	$	(14,319)

    Due to the change in U.S. federal tax law, the Company does not intend to indefinitely reinvest any of its unremitted foreign earnings. As of December 31, 2021, the Company has provided for additional foreign withholding taxes totaling approximately $0.5 million on approximately $4.3 million of undistributed earnings of its subsidiaries operating outside of the United States for which withholding tax applies.

    A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows: 

	2021		2020
Balance at January 1,	$	75,506	$	81,400
Increases to tax positions taken in prior years	—		—
Expiration of statutes of limitation	(5,245)		(5,894)
Translation	9,257		—
Balance at December 31,	$	79,518	$	75,506

At December 31, 2021, unrecognized tax benefits of $79,518, if recognized, would reduce the Company’s annual effective tax rate. As of December 31, 2021, the Company had approximately $43,420 of accrued interest.  The Company believes it is reasonably possible that $14,816 of its unrecognized tax benefits will reverse within the next 12 months due to expiring statute of limitations. The Company records any interest and penalties related to unrecognized tax benefits in income tax expense.

    The Company files federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2018 through 2021 tax years generally remain subject to examination by federal and most state tax authorities. In addition to the U.S., the Company’s major taxing jurisdictions include China, Taiwan, Japan, France and Germany. Taiwan is currently under exam for the 2014 through 2018 tax years, but no material tax adjustments are currently expected.