Note 11 - Income Taxes

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(11)  INCOME TAXES

We are subject to Federal and certain state income taxes. In addition, we are taxed in certain foreign countries.

Earnings (loss) before income taxes were as follows:

	Years Ended December 31,
(in thousands)	2024			2023
Domestic	$	4,889		$	9,600
Foreign		(1,435	)		1,448
Total	$	3,454		$	11,048

Income tax expense (benefit) was as follows:

	Years Ended December 31,
(in thousands)	2024			2023
Current
Domestic – Federal	$	1,221		$	2,139
Domestic – state		230			202
Foreign		(71	)		522
Total	$	1,380		$	2,863
Deferred
Domestic – Federal	$	(1,186	)	$	(1,052	)
Domestic – state		(262	)		31
Foreign		631			(136	)
Total		(817	)		(1,157	)
Income tax expense	$	563		$	1,706

Deferred income taxes reflect the net tax effect of net operating loss and tax credit carryforwards as well as temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following is a summary of the significant components of our deferred tax assets and liabilities at December 31, 2024 and 2023:

	December 31,
(in thousands)	2024			2023
Deferred tax assets:
Capitalized research and development costs	$	3,272		$	2,320
Operating lease liabilities		1,870			859
Accrued vacation pay and stock-based compensation		532			433
Inventories		434			395
Foreign intangible assets		403			369
Net operating loss (state and foreign)		381			245
Acquisition costs		43			44
Allowance for credit losses		45			44
Accrued warranty		25			26
Other		151			62
Total		7,156			4,797
Valuation allowance		(261	)		(245	)
Deferred tax assets		6,895			4,552
Deferred tax liabilities:
Intangible assets		(4,673	)		(1,949	)
Right-of-use assets		(1,821	)		(762	)
Depreciation of property and equipment		(334	)		(404	)
Deferred tax liabilities		(6,828	)		(3,115	)
Net deferred tax assets	$	67		$	1,437

The net change in the valuation allowance for the years ended December 31, 2024 and 2023 was an increase of $16 thousand and $18 thousand, respectively. In assessing the ability to realize the deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In order to fully realize the total deferred tax assets, we will need to generate future taxable income prior to the expiration of net operating loss and tax credit carryforwards which expire in various years through 2044. 

An analysis of the effective tax rate for the years ended December 31, 2024 and 2023 and a reconciliation from the expected statutory rate of 21% is as follows:

	Years Ended December 31,
(in thousands)	2024			2023
Expected income tax expense at U.S. statutory rate	$	726		$	2,320
Increase (decrease) in tax from:
Subpart F income from foreign subsidiaries		145			184
NOL carryforwards utilized		(136	)		39
Stock compensation		201			(329	)
Global intangible low taxed income		-			87
Nondeductible expenses		17			21
Current year tax credits (foreign and research)		(364	)		(367	)
Domestic tax benefit, net of Federal benefit		321			(167	)
Changes in valuation allowance		16			18
Foreign income tax rate differences		96			109
Section 250 foreign derived intangible income deduction		(537	)		(272	)
Acquisition costs		71			-
Other		7			63
Income tax expense	$	563		$	1,706

At December 31, 2024 and 2023, we did not have an accrual for uncertain tax positions.

We file U.S. income tax returns and multiple state and foreign income tax returns. With few exceptions, the U.S. and state income tax returns filed for the tax years ended December 31, 2021 and thereafter are subject to examination by the relevant taxing authorities. As of December 31, 2024, we have federal net operating losses of $430 thousand of which $287 thousand can be carried forward indefinitely. The remaining federal net operating losses will begin to expire in 2032, if not utilized.