Note 7 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

7.     INCOME TAXES

The components of income before income taxes consist of the following (in thousands):

	Year Ended December 31,
	2021			2020
Domestic	$	(1,127	)	$	(1,663	)
Foreign		2,637			3,153
Income before income taxes	$	1,510		$	1,490

The components of the income tax provision consist of the following (in thousands):

	Year Ended December 31,
	2021			2020
Current taxes:
Federal	$	(207	)	$	(512	)
State		9			1
Foreign		267			626
Total current taxes		69			115
Deferred taxes:
Federal		309			346
State		7			6
Foreign		40			180
Total deferred taxes		356			532
Income tax provision	$	425		$	647

A reconciliation of the reported income tax provision to the provision that would result from applying the domestic federal statutory tax rate to pretax income is as follows (in thousands):

	Year Ended December 31,
	2021			2020
Income tax at federal statutory rate	$	317		$	313
Effect of permanent differences		274			121
Global Intangible Low-Taxed Income		183			555
Change in valuation allowance		(37	)		51
Foreign rate differential		(221	)		72
Foreign tax credits		(32	)		(98	)
Stock-based compensation		10			164
Net operating loss carryback		(84	)		(512	)
Other reconciling items		15			(19	)
Income tax provision	$	425		$	647

Income before income taxes and the statutory tax rate for each country that materially contributed to the foreign rate differential presented above is as follows (in thousands):

				Year Ended December 31,
	Statutory Tax Rate			2021		2020
Cayman Islands		—	%	$	2,696	$	2,589
Hong Kong		16.5	%		742		267
China		25.0	%		152		716

Deferred income taxes consist of the following (in thousands):

	December 31,
	2021			2020
Deferred tax assets:
Net operating losses	$	490		$	628
Stock-based compensation		170			510
Operating lease liabilities		396			460
Other		51			60
Total deferred tax assets		1,107			1,658
Valuation allowance		(303	)		(340	)
Net deferred tax assets		804			1,318
Deferred tax liabilities:
Operating lease assets		(376	)		(438	)
Foreign deferreds		(153	)		(216	)
Prepaids		(113	)		(113	)
Other		(6	)		(36	)
Total deferred tax liabilities		(648	)		(803	)
Net deferred tax assets	$	156		$	515

The effective income tax rate for the year ended December 31, 2021 includes an estimate for the Global Intangible Low-Taxed Income (“GILTI”) inclusion. The effect of permanent differences in 2021 and 2020 is mainly due to compensation-related limitations under Internal Revenue Code Section 162(m). As of December 31, 2021, the Company does not have a valuation allowance against its U.S. deferred tax assets. The Company analyzed all sources of available income and determined that they are more likely than not to realize the tax benefits of their deferred assets. As of December 31, 2021, the Company has a valuation allowance against deferred taxes in certain foreign jurisdictions with an overall net operating loss. The valuation allowance will be reduced at such time as management believes it is more likely than not that the deferred tax assets will be realized. Any reductions in the valuation allowance will reduce future income tax provision.

As of December 31, 2021, the Company no longer has U.S. federal net operating losses due to its filing in December 2021 to carry back $603,000 of losses generated in the tax year ended December 31, 2020 to offset taxable income from the tax year ended December 31, 2016. The Company has post-apportioned U.S. state net operating loss carryforwards of $427,000 that begin expiring in 2039. At December 31, 2021, the Company has foreign net operating loss carryforwards of approximately $1.9 million in various jurisdictions with various expirations.

As of December 31, 2021, income taxes payable for the repatriation tax on the deemed repatriation of deferred foreign income required the U.S. Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017 by the U.S. government, totaled $13.7 million, of which $12.1 million is reflected as a noncurrent liability.

As a result of capital return activities, the Company determined that a portion of its current undistributed foreign earnings is no longer deemed reinvested indefinitely by its non-U.S. subsidiaries. For state income tax purposes, the Company will continue to periodically reassess the needs of its foreign subsidiaries and update its indefinite reinvestment assertion as necessary. To the extent that additional foreign earnings are not deemed permanently reinvested, the Company expects to recognize additional income tax provision at the applicable state corporate income tax rate(s). As of December 31, 2021, the Company has not recorded a state deferred tax liability for earnings that the Company plans to repatriate out of accumulated earnings in future periods because all earnings as of December 31, 2021 have already been repatriated. Due to the Tax Act, repatriation from foreign subsidiaries will be offset with a dividends received deduction, resulting in little to no impact on federal tax expense. All undistributed earnings in excess of 50% of current earnings on an annual basis are intended to be reinvested indefinitely as of December 31, 2021.

The Company and its subsidiaries file tax returns in the United States, California, New Jersey, Texas and various foreign jurisdictions. During the fourth quarter of 2018, the Company was notified that it was selected for audit of the 2016 tax year by the U.S. Internal Revenue Service (the "IRS"). The audit was subsequently expanded to also include the 2017, 2018 and 2019 tax years. On October 12, 2021, the Company received notification from the IRS that it had completed the audit process for all tax years with no changes made to the Company's previously reported tax. The Company is no longer subject to state income tax examinations for years prior to 2017. No other jurisdictions are currently examining any income tax returns of the Company.