Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes [Abstract]

Income Taxes

15.  Income Taxes

The consolidated income before income taxes, by domestic and foreign sources, is as follows:

(in thousands)	Years ended December 31,
	2021			2020
Domestic	$	13,351		$	(13,834	)
Foreign		(2,581	)		3,652
Total	$	10,770		$	(10,182	)

The provision (benefit) for income taxes is as follows:

(in thousands)	Years ended December 31,
	2021			2020
Current:
Federal	$	(75	)	$	3
State		74			67
Foreign		71			285
Subtotal		70			355
Deferred:
Federal		48			-
State		45			-
Foreign		-			-
Subtotal		93			-
Total	$	163		$	355

The effective income tax rate for the years ended December 31, 2021 and 2020 differed from the statutory federal income tax rate as presented below:

	Effective Tax Rate percentage (%)
	Years ended December 31,
	2021			2020
Statutory federal income tax rate		21.0	%		21.0	%
State income taxes, net of federal tax benefit		2.1	%		3.7	%
Effect of foreign operations		(0.2	)%		(0.9	)%
Effect of foreign restructuring		2.3	%		(6.7	)%
Change in valuation allowance		2.3	%		(15.6	)%
PPP Loan Forgiveness		(19.5	)%		0.0	%
Meals and Entertainment		0.0	%		(0.4	)%
Stock-based compensation		1.0	%		(2.2	)%
GILTI Inclusion		0.0	%		(0.2	)%
Uncertain Tax Positions		(7.5	)%		(2.5	)%
Prior year reconciling items		0.0	%		0.3	%
Effective tax rate		1.5	%		(3.5	)%

The difference between the effective rate and statutory rate in 2021 primarily resulted from a change in valuation allowance, permanent differences, including PPP Loan forgiveness and foreign restructuring, accruals related to uncertain tax positions, the tax impact of stock compensation forfeitures, foreign taxes, and state tax expense.

Deferred income taxes arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. A summary of the tax effect of the significant components of the deferred income tax assets and liabilities is as follows:

(in thousands)	As of December 31,
	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	6,180		$	5,406
Accruals		122			387
Reserves		434			309
Alternative minimum tax credit carryforwards		-			69
Stock-based compensation expense		172			251
Intangible assets		2,368			2,362
Goodwill		892			995
Operating lease liability		472			747
Fixed Assets		29			-
Other		243			271
Total deferred tax asset		10,912			10,797
Valuation allowance		(9,410	)		(9,165	)
Total deferred tax asset less valuation allowance		1,502			1,632
Deferred tax liabilities:
Software development costs		(135	)		(164	)
Fixed assets		-			(22	)
Indefinite-lived intangibles		(1,190	)		(967	)
Operating lease - right of use asset		(253	)		(379	)
Other		(17	)		(100	)
Total deferred tax liability		(1,595	)		(1,632	)
Net deferred tax liability	$	(93	)	$	-

We file tax returns in the United States federal jurisdiction and in several state and foreign jurisdictions. Because of the net operating loss carryforwards, we are subject to U.S. federal and state income tax examinations for tax years 2000, and forward, and is subject to foreign tax examinations by tax authorities for the years 2016 and forward. Open tax years related to state and foreign jurisdictions remain subject to examination but are not considered material to our financial position, results of operations or cash flows.

In assessing the ability to realize our deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. Our ability to realize its deferred tax assets depends primarily upon the preponderance of positive evidence that could be demonstrated by three-year cumulative positive earnings, reversal of existing deferred temporary differences, and generation of sufficient future taxable income to allow for the utilization of deductible temporary differences.

As of each reporting date, our management considers new evidence, both positive and negative, that could impact management's view with regard to future realization of deferred tax assets to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. This analysis is performed on a jurisdiction by jurisdiction basis.

We performed an analysis of the valuation allowance position for its worldwide deferred tax assets and determined that a valuation allowance continues to be necessary on its U.S. and foreign deferred tax assets at December 31, 2021.

As of December 31, 2021, our largest deferred tax asset was $6.2 million of net operating losses. It primarily relates to a U.S. net operating loss carryforward of $6.2 million; $4.5 million of the net operating loss carryforward expires in various amounts between 2023 and 2037; $1.7 million of the net operating loss carryforward is an indefinite-lived deferred tax asset. We do not believe that it is more likely than not that we will be able to realize its deferred tax assets for its U.S. and foreign deferred tax assets at December 31, 2021 and therefore we have maintained a $9.4 million valuation allowance for our net deferred tax assets. The Company has a deferred tax liability in the amount of $93 thousand at December 31, 2021 related to the portion of Goodwill which cannot be offset by deferred tax assets.

As of December 31, 2021 and 2020, our consolidated cash and cash equivalents totaled $3.6 million and $6.7 million, respectively, including cash and cash equivalents held at non-U.S. entities totaling $1.2 million and $3.1 million, respectively. The non-U.S. entities include operating subsidiaries located in China. We do not assert permanent reinvestment in China. Accordingly, we analyzed the cumulative earnings and profits and determined the US deferred liability related to this position is immaterial.

Uncertain Tax Positions

During 2021 and 2020, we recorded tax liabilities for certain foreign tax contingencies. We recorded these uncertain tax positions in other current liabilities on the consolidated balance sheets.

The following table outlines our uncertain tax liabilities, including accrued interest and penalties for each jurisdiction:

	China				Ukraine						South Korea					UK				U.S.
(in thousands)	Tax		Interest and Penalties		Tax			Interest and Penalties			Tax			Interest and Penalties		Tax		Interest and Penalties		Tax			Interest and Penalties			Total
Balance, January 1, 2020	$	201	$	318	$	78		$	60		$	554		$	178	$	-	$	-	$	793		$	6		$	2,188
Increases		13		60		-			-			128			96		45		21		-			3			366
Decreases		-		-		(64	)		(50	)		-			-		-		-		-			-			(114	)
Balance, December 31, 2020	$	214	$	378	$	14		$	10		$	682		$	274	$	45	$	21	$	793		$	9		$	2,440
Increases		6		50		-			-			-			61		-		9		-			3			129
Decreases		-		-		(14	)		(10	)		(38	)		-		-		-		(793	)		(12	)		(867	)
Balance, December 31, 2021	$	220	$	428	$	-		$	-		$	644		$	335	$	45	$	30	$	-		$	-		$	1,702