Note 7 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 7.  Income Taxes

The following table summarizes the income tax expense for the years ended December 31, 2021 and 2020 (in thousands):

	2021			2020
Current:
Federal	$	-		$	-
State		(34	)		(36	)
Foreign		(190	)		(142	)
Current Total		(224	)		(178	)
Deferred:
Federal		(552	)		(633	)
State		(47	)		(91	)
Foreign		-			-
Deferred Total		(599	)		(724	)
Total	$	(823	)	$	(902	)

The income tax expense differs from the amount computed by applying the statutory federal and state income tax rates to the net income before income tax.  The following table shows the reasons for these differences (in thousands):

	2021			2020
Computed income tax (expense) benefit at statutory rate	$	(1,122	)	$	789
Decrease (increase) in taxes resulting from:
Permanent and other deductions, net		419			51
Goodwill impairment		-			(120	)
Global intangible low-taxed income		(204	)		(113	)
Foreign income taxes		156			10
State income taxes, net of federal benefit		(119	)		120
Deferred tax effects		55			(153	)
Valuation allowance		(8	)		(1,486	)
Total income tax expense	$	(823	)	$	(902	)
Effective tax rate		15.4	%		(22.3%	)

The Company’s effective tax rate was 15.4% for the year ended December 31, 2021. The low effective tax rate was primarily driven by $2.0 million non-taxable gain on forgiveness of PPP loans, which was the result of governmental actions to mitigate the impacts of the COVID-19 pandemic.

The Company reported income tax expense of $0.9 million for 2020 despite a pre-tax loss. The expense was primarily due to a $1.5 million valuation allowance recorded against deferred tax assets. The valuation allowance was the result of management’s assessment as of December 31, 2020 that it was more likely than not that the benefit of the Company’s deferred tax assets would not be realized primarily due to the impact of the COVID-19 pandemic on its business. Income tax expense for 2020 was also impacted by foreign taxes in the United Kingdom related to the Company’s London office that are not deductible for U.S. income tax purposes. In addition, the $0.8 million goodwill impairment recorded in 2020 resulted in only a $0.1 million tax benefit due to certain permanent tax differences.

The following table shows the tax effect of significant temporary differences, which comprise the deferred tax asset and liability (in thousands):

	2021			2020
Deferred tax asset:
Net operating loss carryforward	$	293		$	1,063
Foreign tax credits		495			483
Accrued expenses		552			396
Allowance for doubtful accounts		78			78
Lease liability		493			146
Share-based compensation		66			49
Other intangible assets		20			30
Interest expense limitation		-			23
Less: Valuation allowance		(1,494	)		(1,486	)
Total deferred income tax asset		503			782
Deferred tax liability:
Property and equipment		(39	)		(159	)
Right of use asset		(469	)		(136	)
Intangible assets-brand name		(1,183	)		(1,197	)
Goodwill		(340	)		(288	)
Other intangible assets		(520	)		(451	)
Total deferred income tax liability		(2,551	)		(2,231	)
Deferred income tax, net	$	(2,048	)	$	(1,449	)

Net deferred tax assets and liabilities are presented as noncurrent within the Company’s consolidated balance sheets. Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are actually paid or recovered. The Company recognizes a valuation allowance for deferred tax assets when it is more likely than not that these assets will not be realized. In making this determination, all positive and negative evidence is considered, including future reversals of existing taxable temporary differences, tax planning strategies, future taxable income, and taxable income in prior carryback years.

At December 31, 2021 and December 31, 2020, the Company had $1.1 million and $4.3 million, respectively, of U.S. federal net operating loss carryforwards. The $1.1 million U.S. federal net operating loss carryforward at December 31, 2021 has no expiration date. Additionally, the Company has $0.5 million of foreign tax credit carryforwards which expire between 2023 and 2031.

The Company does not believe that it had any significant uncertain tax positions at December 31, 2021 and December 31, 2020, nor is this expected to change within the next twelve months due to the settlement and expiration of statutes of limitation.

The U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017 and introduced significant changes to U.S. income tax law. Effective in 2018, the Tax Act reduced the U.S. statutory tax rate from 35% to 21% and created new taxes on certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income tax and base erosion tax, respectively. In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Company elected to treat any potential GILTI inclusions as a period cost.