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Note 7 - Income Taxes | 12 Months Ended
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Jan. 31, 2021
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | Note 7 - Income taxes
Income/(loss) from continuing operations before income taxes (in thousands) |  | 2020 |  |  | 2019 |
Domestic |  | $ | (3,288 | ) |  | $ | 400 |
Foreign |  |  | (4,487 | ) |  |  | 4,635 |
Total |  | $ | (7,775 | ) |  | $ | 5,035 |
Components of income tax expense/(benefit) (in thousands) |  | 2020 |  |  | 2019 |
Current |  |  |  |  |  |  |  |
Federal |  | $ | 18 |  |  | $ | 34 |
Foreign |  |  | 413 |  |  |  | 1,455 |
State and other |  |  | 105 |  |  |  | 181 |
Total current income tax expense |  |  | 536 |  |  |  | 1,670 |
Deferred |  |  |  |  |  |  |  |
Federal |  |  | — |  |  |  | — |
Foreign |  |  | (669 | ) |  |  | (211 | )
State and other |  |  | — |  |  |  | — |
Total deferred income tax expense/(benefit) |  |  | (669 | ) |  |  | (211 | )
Total income tax expense/(benefit) |  | $ | (133 | ) |  | $ | 1,459 |
Repatriation of foreign earnings As a result of the onetime transition tax from the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Act”), the Company estimates that distributions from foreign subsidiaries will no longer be subject to incremental U.S. tax as they will either be remittances of previously taxed earnings and profits or eligible for a full dividends received deduction. Current and future earnings in the Company's subsidiaries in Canada and Egypt are not permanently reinvested, and earnings in its Indian subsidiary are partially permanently reinvested. Earnings from these subsidiaries are subject to tax in their local jurisdiction, and withholding taxes in these jurisdictions are considered. As such, the Company has reduced the liability from $0.4 million as of January 31, 2020 to $0.2 million as of January 31, 2021 related to these taxes. U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the United States. The Company intends to permanently reinvest the undistributed earnings of its Middle Eastern subsidiaries. The Middle Eastern subsidiaries have unremitted earnings of $22.4 million as of January 31, 2021, all of which has been subject to the transition tax in the United States. Unremitted earnings of $15.7 million in the United Arab Emirates would not be subject to withholding tax in the event of a distribution, $6.8 million of unremitted earnings in Saudi Arabia would be subject to withholding tax of less than $0.1 million, and the $4.4 million of earnings permanently reinvested in India would be subject to withholding tax of $0.9 million. The Company has not recorded a deferred tax liability related to any financial reporting basis over tax basis related to the investment in these foreign subsidiaries as it is not practical to estimate. The difference between the provision for income taxes and the amount computed by applying the U.S. Federal statutory rate of 21% was as follows:
(In thousands) |  | 2020 |  |  | 2019 |
Tax expense at federal statutory rate |  | $ | (1,633 | ) |  | $ | 1,057 |
State expense, net of federal income tax effect |  |  | (97 | ) |  |  | 147 |
Deferred balance adjustment |  |  | (5 | ) |  |  | (212 | )
Domestic valuation allowance |  |  | 1,807 |  |  |  | (337 | )
Domestic return to provision |  |  | (485 | ) |  |  | (172 | )
Global Intangible Low Tax Income Inclusion |  |  | - |  |  |  | 703 |
Nontaxable Paycheck Protection Program Loan Forgiveness Proceeds |  |  | (662 | ) |  |  | - |
Permanent differences other |  |  | 282 |  |  |  | (5 | )
Valuation allowance for state NOLs |  |  | 183 |  |  |  | (2 | )
Differences in foreign tax rate |  |  | 527 |  |  |  | (79 | )
Foreign rate change |  |  | 18 |  |  |  | (63 | )
Deferred tax on unremitted earnings |  |  | (176 | ) |  |  | 183 |
Foreign withholding taxes |  |  | 209 |  |  |  | 274 |
All other, net expense |  |  | (101 | ) |  |  | (35 | )
Total income tax expense/(benefit) |  | $ | (133 | ) |  | $ | 1,459 |
The Company's worldwide effective tax rates ("ETR") were 1.7% and 29.0% in 2020 and 2019 , respectively. The change in the ETR from the prior year to the current year is largely due to the Company's valuation allowance against its domestic deferred tax asset and changes to the mix of income in various jurisdictions, including losses in the zero rate jurisdiction of the United Arab Emirates.
Components of deferred income tax assets (in thousands) |  | 2020 |  |  | 2019 |
U.S. Federal NOL carryforward |  | $ | 8,626 |  |  | $ | 7,209 |
Deferred compensation |  |  | 508 |  |  |  | 401 |
Research tax credit |  |  | 2,686 |  |  |  | 2,686 |
Foreign NOL carryforward |  |  | 543 |  |  |  | 223 |
Foreign tax credit |  |  | 2,580 |  |  |  | 2,580 |
Stock compensation |  |  | 442 |  |  |  | 429 |
Other accruals not yet deducted |  |  | 245 |  |  |  | 267 |
State NOL carryforward |  |  | 2,678 |  |  |  | 2,567 |
Accrued commissions and incentives |  |  | 362 |  |  |  | 354 |
Inventory valuation allowance |  |  | 106 |  |  |  | 75 |
Lease liability |  |  | 541 |  |  |  | 604 |
Other |  |  | 113 |  |  |  | 127 |
Deferred tax assets, gross |  |  | 19,430 |  |  |  | 17,522 |
Valuation allowance |  |  | (17,746 | ) |  |  | (15,937 | )
Total deferred tax assets, net of valuation allowances |  | $ | 1,684 |  |  | $ | 1,585 |
Components of the deferred income tax liability |  |  |  |  |  |  |  |
Depreciation |  | $ | (981 | ) |  | $ | (1,275 | )
Foreign subsidiaries unremitted earnings |  |  | (289 | ) |  |  | (470 | )
Prepaid |  |  | (21 | ) |  |  | (61 | )
Right of use asset |  |  | (484 | ) |  |  | (538 | )
Total deferred tax liabilities |  | $ | (1,775 | ) |  | $ | (2,344 | )
Deferred tax liability, net |  | $ | (91 | ) |  | $ | (759 | )
Balance sheet classification |  |  |  |  |  |  |  |
Long-term assets |  | $ | 823 |  |  | $ | 293 |
Long-term liability |  |  | (914 | ) |  |  | (1,052 | )
Total deferred tax liabilities, net of valuation allowances |  | $ | (91 | ) |  | $ | (759 | )
The Company has a gross U.S. Federal operating loss carryforward of $41.1 million that will begin to expire in the year ending January 31, 2031. The deferred tax asset ("DTA") for state net operating loss ("NOL") carryforwards of $2.7 million relates to amounts that expire at various times from 2022 to 2031. The Company has a DTA foreign NOL carryforward of $0.5 million for its subsidiaries in Saudi Arabia and India. The NOL in Saudi Arabia can be carried forward indefinitely and does not have a valuation allowance recorded against it while the NOL in India can be carried forward for eight years and does not have a valuation allowance recorded against it. The ultimate realization of this tax benefit is dependent upon the generation of enough operating income in the foreign tax jurisdictions. The Company periodically reviews the adequacy of its valuation allowance in all of the tax jurisdictions in which it operates, evaluates future sources of taxable income and tax planning strategies and may make further adjustments based on management's outlook for continued profits in each jurisdiction. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the domestic cumulative loss incurred leading up to the period ended January 31, 2013. 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, 2013, a full valuation allowance was recorded against the domestic deferred tax assets as the Company has determined that they are not more likely than not to be realized based upon the available evidence. As of January 31, 2021, the Company has not released the valuation allowance as the objective negative evidence in the form of cumulative losses continues to exist. The amount of the domestic deferred tax assets considered realizable, however, could be increased if objective negative evidence in the form of cumulative losses is no longer present. The Company has a deferred tax asset of $2.6 million for U.S. foreign tax credits after considering the impact of the repatriated foreign earnings and the one -time transition tax. The foreign tax credit deferred tax asset is fully offset with a valuation allowance. The excess foreign tax credits are subject to a ten -year carryforward and will begin to expire on January 31, 2026. The following table summarizes uncertain tax position ("UTP") activity, excluding the related accrual for interest and penalties:
(In thousands) |  | 2020 |  |  | 2019 |
Balance at beginning of the year |  | $ | 1,545 |  |  | $ | 1,447 |
Increases in positions taken in a prior period |  |  | 2 |  |  |  | (26 | )
Increases in positions taken in a current period |  |  | 65 |  |  |  | 132 |
Decreases due to lapse of statute of limitations |  |  | (21 | ) |  |  | (8 | )
Balance at end of the year |  | $ | 1,591 |  |  | $ | 1,545 |
Included in the total UTP liability were estimated accrued interest and penalties of $0.2 million and less than $0.1 million in January 31, 2021 and 2020, respectively. These non-current income tax liabilities are recorded in other long-term liabilities in the consolidated balance sheet and recognized as an expense during the period. The Company's policy is to include interest and penalties in income tax expense. On January 31, 2021 , the Company did not anticipate any significant adjustments to its unrecognized tax benefits within the next twelve months. Included in the balance on January 31, 2021 were amounts offset by deferred taxes (i.e. temporary differences) or amounts that could be offset by refunds in other taxing jurisdictions (i.e., corollary adjustments). Upon reversal, $0.5 million of the amount accrued on January 31, 2021 would impact the future ETR. The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. Tax years related to January 31, 2018, 2019 and 2020 are open for federal and state tax purposes. In addition, federal and state tax years January 31, 2002 through January 31, 2009 are subject to adjustment on audit, up to the amount of research tax credit generated in those years. Any NOL carryover can still be adjusted by the Internal Revenue Service in future year audits. The Company's management periodically estimates the probable tax obligations of the Company using historical experience in tax jurisdictions and informed judgments. There are inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which the Company transacts business. The judgments and estimates made at a point in time may change based on the outcome of tax audits, as well as changes to or further interpretations of regulations. If such changes take place, there is a risk that the tax rate may increase or decrease in any period. Tax accruals for tax liabilities related to potential changes in judgments and estimates for federal, foreign and state tax issues are included in other long-term liabilities on the consolidated balance sheet.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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