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Note O - Income Taxes | 12 Months Ended
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Dec. 31, 2021
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | NOTE O—INCOME TAXES The sources of the Company’s loss from operations before income taxes were as follows (in thousands):
|  | Years ended December 31, |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Domestic |  | $ | (21,229 | ) |  | $ | (20,288 | ) |  |  | (35,279 | )
Foreign |  |  | (32,931 | ) |  |  | (30,936 | ) |  |  | (16,108 | )
Total loss before income taxes |  | $ | (54,160 | ) |  | $ | (51,224 | ) |  |  | (51,387 | )
The provision for income tax expense (benefit) for the years ended December 31, was as follows (in thousands):
Current: |  | 2021 |  |  | 2020 |  |  | 2019 |
Federal |  | $ | — |  |  | $ | 41 |  |  | $ | — |
State |  |  | 2 |  |  |  | 2 |  |  |  | 16 |
Foreign |  |  | — |  |  |  | — |  |  |  | 97 |
Total |  | $ | 2 |  |  | $ | 43 |  |  | $ | 113 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | (172 | ) |  | $ | 16,375 |
State |  |  | — |  |  |  | — |  |  |  | 1,716 |
Foreign |  |  | — |  |  |  | 7,357 |  |  |  | (3,542 | )
Total |  | $ | — |  |  | $ | 7,185 |  |  | $ | 14,549 |
Income tax (benefit) expense |  | $ | 2 |  |  | $ | 7,228 |  |  | $ | 14,662 |
Deferred income tax assets and liabilities result principally from net operating losses, different methods of recognizing depreciation, reserves for doubtful accounts and inventory, research and development credits and foreign tax credits. At December 31, the net deferred tax assets and liabilities are comprised of the following approximate amounts (in thousands):
|  | 2021 |  |  | 2020 |
NOL carryforward |  | $ | 44,448 |  |  | $ | 31,526 |
Inventory reserves |  |  | 2,872 |  |  |  | 2,241 |
Unrealized gains and losses |  |  | 69 |  |  |  | 59 |
Share-based compensation |  |  | 645 |  |  |  | 618 |
Foreign tax credit |  |  | 4,599 |  |  |  | 4,599 |
Research and development credits |  |  | 9,879 |  |  |  | 9,008 |
Interest |  |  | 2,840 |  |  |  | 1,784 |
ASC 842 Assets |  |  | 1,740 |  |  |  | 1,671 |
Other |  |  | 728 |  |  |  | 784 |
Deferred tax assets |  |  | 67,820 |  |  |  | 52,290 |
Less valuation allowance |  |  | (57,721 | ) |  |  | (43,462 | )
Deferred tax assets, net |  |  | 10,099 |  |  |  | 8,828 |
Depreciation and amortization |  |  | (8,600 | ) |  |  | (7,402 | )
ASC 842 Liabilities |  |  | (1,499 | ) |  |  | (1,426 | )
Deferred tax liabilities |  |  | (10,099 | ) |  |  | (8,828 | )
Deferred tax assets, net |  | $ | — |  |  | $ | — |
The Company has a U.S. net operating loss carry forward of approximately $104.8 million, $32.7 million of which, if unused, expires between 2026 and 2032 and $72.1 million of which, can be carried forward indefinitely. The Company has U.S. and state research and development tax credits of $9.9 million, which, if unused, expire between 2028 and 2041. In addition, the Company has foreign tax credits of $4.6 million, which, if unused, will expire in 2028. Utilization of U.S. net operating losses and tax credit carry forwards are subject to an annual limitation due to the ownership change limitations set forth in Internal Revenue Code Section 382. As of December 31, 2021, the Company had Taiwan net operating loss carry forwards of approximately $71.5 million and China net operating loss carry forwards of approximately $48.1 million. The carryforward period for the Taiwan net operating loss carry forwards is ten years, and the expiration period begins 2028. The carryforward period for China net operating loss carry forwards is five years, and the expiration period begins 2024. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2021. 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, 2021 and December 31, 2020, a valuation allowance of $57.7 million and $43.5 million, respectively, has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. During the years ended December 31, 2021 and 2020, the valuation allowance increased by $14.3 million and $17.7 million, respectively, primarily due to an increase in deferred tax assets with a full valuation allowance and recording a valuation allowance in certain jurisdictions. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth. The following table shows the change in the deferred tax valuation as follows:
|  | 2021 |  |  | 2020 |  |  | 2019 |
Beginning Balance, January 1 |  | $ | 43,462 |  |  | $ | 25,736 |  |  | $ | — |
Change charged to expense/(income) |  |  | 13,822 |  |  |  | 17,137 |  |  |  | 25,736 |
Change charged to currency translation adjustment |  |  | 437 |  |  |  | 589 |  |  |  | — |
Ending Balance, December 31 |  | $ | 57,721 |  |  | $ | 43,462 |  |  | $ | 25,736 |
A reconciliation of the U.S. federal income tax rate of 21% for the years ended December 31, 2021, 2020 and 2019, respectively, to the Company’s effective income tax rate follows (in thousands):
|  | 2021 |  |  | 2020 |  |  | 2019 |
Expected taxes at statutory rate |  | $ | (11,374 | ) |  | $ | (10,775 | ) |  | $ | (10,791 | )
PPP loan forgiveness |  |  | (1,308 | ) |  |  | — |  |  |  | — |
Non-deductible/non-taxable items |  |  | 897 |  |  |  | 1,132 |  |  |  | 962 |
Foreign rate differences |  |  | 107 |  |  |  | 1,153 |  |  |  | 590 |
Foreign permanent differences |  |  | (1,320 | ) |  |  | (1,002 | ) |  |  | (671 | )
Changes in valuation allowance |  |  | 13,822 |  |  |  | 17,137 |  |  |  | 25,736 |
Share-based compensation |  |  | 468 |  |  |  | 426 |  |  |  | 607 |
Research and development credits |  |  | (872 | ) |  |  | (744 | ) |  |  | (1,616 | )
Alternative Minimum Tax |  |  | — |  |  |  | (172 | ) |  |  | — |
Foreign other |  |  | — |  |  |  | 12 |  |  |  | 27 |
Other, net |  |  | (418 | ) |  |  | 61 |  |  |  | (182 | )
Tax (benefit) expense |  | $ | 2 |  |  | $ | 7,228 |  |  | $ | 14,662 |
The Company's provision for income taxes in 2021 was lower than 2020 primarily due to the change of the valuation allowance on the deferred tax assets. The Company's provision for income taxes in 2020 was lower than 2019 due to the recognition of a valuation allowance on the deferred tax assets, along with excess tax expense from stock-based compensation, partially offset by differences in pre-tax income and recording research and development credits. The Company’s wholly owned subsidiary, Prime World is a tax-exempt entity under the Income Tax Code of the British Virgin Islands. The Company’s wholly owned subsidiary, Global Technology, Inc., has enjoyed preferential tax concessions in China as a national high-tech enterprise. In March 2007, China’s parliament enacted the PRC Enterprise Income Tax Law, or the EIT Law, under which, effective January 1, 2008, China adopted a uniform income tax rate of 25% for all enterprises including foreign invested enterprises. Global Technology, Inc. was recognized as a National high-tech enterprise in 2008 and was entitled to a 15% tax rate for a three year period from November 2008 to November 2011. In 2011, 2014, and 2017, Global Technology, Inc. renewed its National high-tech enterprise certificate and therefore extended its three-year tax preferential status through November 2020. In December 2020, Global Technology, Inc. again renewed its National high-tech enterprise certificate and therefore extended its three-year tax preferential status﻿ from December 2020 until December 2023. This tax holiday reduced its 2021, 2020 and 2019 income tax provision by approximately $0.0 million, $1.4 million, and $1.0 million, respectively. This tax holiday reduced its fiscal 2021, 2020, and 2019 diluted earnings per share by approximately $0.00, $0.05, and $0.05 respectively. Effective January 1, 2016, China expanded the scope of the National high-tech enterprise to include additional deductions for qualifying research and development. As of December 31, 2021, 2020 and 2019, the total amount of unrecognized tax benefit was $0.2 million, $0.2 million, and $0.2 million, respectively. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):
|  | 2021 |  |  | 2020 |  |  | 2019 |
Unrecognized tax benefits — January 1 |  | $ | 181 |  |  | $ | 181 |  |  | $ | 181 |
Gross increases — tax positions in prior period |  |  | — |  |  |  | — |  |  |  | — |
Gross decreases — tax positions in prior period |  |  | — |  |  |  | — |  |  |  | — |
Unrecognized tax benefits — December 31 |  | $ | 181 |  |  | $ | 181 |  |  | $ | 181 |
The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. Related to the unrecognized tax benefits noted above, it has not accrued penalties or interest during 2021 as a result of net operating losses. During 2020 or 2019, the Company also accrued no penalties or interest. The Company is subject to taxation in the United States and various states and foreign jurisdictions. The Company’s open tax years subject to examination in the U.S. federal and state jurisdictions are 2018 through 2020. To the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or tax credit carryforward. The Company is subject to examination for tax years 2011 forward for various foreign jurisdictions. The U.S. Tax Act significantly changed how the U.S. taxes corporations. The U.S. Tax Act requires complex computations to be performed that were not previously required by U.S. tax law, significant judgments to be made in interpretation of the provisions of the U.S. Tax Act, significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies will continue to interpret or issue guidance on how provisions of the U.S. Tax Act will be applied or otherwise administered. As future guidance is issued, the Company may make adjustments to amounts that we have previously recorded that may materially impact our provision for income taxes in the period in which the adjustments are made. In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020. The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property (“QIP”). On December 27, 2020, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 was enacted as part of the Consolidated Appropriations Act, 2021, followed by the American Rescue Plan Act on March 1, 2021. These recent laws, among many other provisions, expand and extend the Paycheck Protection Program (“PPP”), refundable employee retention tax credits previously made available under the CARES Act and allow a full deduction for business meals for the 2021 and 2022 tax years. During 2021, the Company recognized a tax benefit of $1.3 million on the non-taxable forgiveness of the PPP loan (see also Note K). However, the legislation had no material impact to income tax expense on the Company’s financial statements as a result of our valuation allowance. As of December 31, 2021, the Company does not have any accumulated undistributed earnings generated by foreign subsidiaries. The Company expects any earnings of foreign subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs.

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