Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Income Tax Disclosure [Text Block]

9. Income Taxes

The income tax expense (benefit) is summarized as follows:

	Years Ended December 31,
	2024			2023
Current:
Federal	$	489		$	25
State		1,199			29
		1,688			54
Deferred:
Federal		(1,581	)		—
State		(1,091	)		—
		(2,672	)		—
	$	(984	)	$	54

A reconciliation of the statutory U.S. income tax rate to the effective income tax rate follows:

	Years Ended December 31,
	2024			2023
Statutory U.S. income tax rate		21.00	%		21.00	%
State taxes, net of federal benefit		9.42	%		(1.34	)%
Permanent differences		0.84	%		(0.87	)%
Change in valuation allowance		(48.79	)%		(48.01	)%
Change in tax credits		(4.59	)%		16.59	%
Uncertain tax position		19.25	%		—
Impact from rate changes		(10.48	)%		10.14	%
Effective income tax rate		(13.35	)%		(2.49	)%

The components of the deferred income tax assets (liabilities) are as follows:

	Years Ended December 31,
	2024			2023
Deferred tax assets:
Operating loss carryforwards	$	—		$	1,857
R&D Tax Credits		300			2,779
Section 263A costs		47			56
Additional K-1 temporary adjustment		1			—
Capitalized research and development expenses		3,389			1,029
Interest		—			34
Net ROU asset and lease liability		42			53
Unrealized loss		—			628
Capital loss carryforward		802			—
Asset reserves:
Bad debts		13			12
Inventory allowance		454			430
State depreciation		117			—
Accrued expenses:
Non-qualified stock options		463			343
Compensation		122			107
Deferred warranty revenue		2,638			1,934
Deferred tax assets		8,388			9,262
Less valuation allowance		(802	)		(4,398	)
Total deferred tax assets		7,586			4,864
Deferred tax liabilities:
Depreciation		(798	)		(748	)
Total deferred tax liabilities		(798	)		(748	)
Net deferred tax assets	$	6,788		$	4,116

           As of December 31, 2024, the Company had deferred tax assets of approximately $7,586 offset by deferred tax liabilities of $798. This asset is primarily composed of capitalization of research and development expenses and deferred revenue. The liability is composed of the effect of differences in amortization and depreciation utilized for tax purposes. 

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During 2024, the Company utilized $7,915 of federal NOLs and during 2023 the Company utilized $4,911 of federal NOLs. The deferred tax asset amounts are based upon management’s conclusions regarding, among other considerations, the Company’s current and anticipated customer base, contracts, and product introductions, certain tax planning strategies, and management’s estimates of future earnings based on information currently available, as well as recent operating results during 2024, 2023, and 2022. GAAP requires that all positive and negative evidence be analyzed to determine if, based on the weight of available evidence, the Company is more likely than not to realize the benefit of the deferred tax asset.

          Based on the analysis of all available evidence, both positive and negative, the Company has concluded that, except for the capital loss carryforward of approximately $802, it currently does have the ability to generate sufficient taxable income in the necessary period to utilize the benefits for the deferred tax assets. Accordingly, the Company recorded a decrease in the valuation allowance of $3,596 as of December 31, 2024. The Company cannot presently estimate what, if any, changes to the valuation of its deferred tax assets may be deemed appropriate in the future. If the Company incurs future losses, it may be necessary to record additional valuation allowance amounts related to the deferred tax assets recognized as of December 31, 2024.

Should the factors underlying management’s analysis change, future valuation adjustments to the Company’s net deferred tax asset may be necessary. If future losses are incurred, it may be necessary to record an additional valuation allowance related to the Company’s net deferred tax asset recorded as of December 31, 2024. The Company cannot presently estimate what, if any, changes to the valuation of its deferred tax asset may be deemed appropriate in the future.  

The Company performed a comprehensive review of its portfolio of uncertain tax positions in accordance with recognition standards established by GAAP. In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return or planned to be taken in a future tax return that has not been reflected in measuring income tax expense for financial reporting purposes. 

A reconciliation of the beginning and ending amount of our unrecognized tax benefits is as follows:

	2024
Balance at January 1		-
Additions based on tax positions related to the current year		154
Additions for tax positions of prior years		1,265
Balance at December 31,		1,419

As of December 31, 2024, the Company recorded approximately $1,419 of unrecognized tax benefits, a net increase of $1,419 from $-0- as of December 31, 2023.  If the Company recognized its tax positions, approximately $1,419 would favorably impact the tax rate.

Penalties and tax-related interest expense, of which there were no material amounts for the years ended December 31, 2024, and 2023, are reported as a component of income tax expense (benefit).

The Company files federal income tax returns, as well as multiple state and local jurisdiction tax returns. A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution on any particular uncertain tax position, the Company believes that its allowances for income taxes reflect the most probable outcome. The Company adjusts these allowances, as well as the related interest, in light of changing facts and circumstances. The resolution of a matter would be recognized as an adjustment to the provision for income taxes and the effective tax rate in the period of resolution. The calendar years 2019 through 2023 are still open to IRS examination under the statute of limitations.  The last IRS examination on the Company’s 2007 calendar year was closed with no change.