INCOME TAXES

12 Months Ended

Dec. 31, 2024

INCOME TAXES

INCOME TAXES

NOTE 12 – INCOME TAXES

Components of income (loss) before taxes:

	Year Ended December 31,
(in thousands)	2024			2023
U.S. operations	$	(3,591	)	$	(536	)
Foreign operations		884			1,216
Total income (loss) before taxes	$	(2,707	)	$	680

Income tax expense (benefit) consists of:

	Year Ended December 31,
(in thousands)	2024		2023
Current tax expense (benefit)
U.S. federal	$	0	$	0
State		4		20
Foreign		382		174
		386		194
Deferred tax expense (benefit) – U.S. federal		-		-
Total income tax expense (benefit)	$	386	$	194

Income tax (expense) increased by $192,000 for the year ended December 31, 2024, compared to 2023.  The increase was primarily a result of the withholding tax of $337,000 on the repatriation of cash from China subsidiary in 2024.  Income tax (expense) in 2024 and 2023 is primarily the result of foreign subsidiary income tax and minimal U.S. state income tax.

A reconciliation of our effective income tax and the U.S. federal tax rate is as follows:

	Year Ended December 31,
(in thousands)	2024			2023
Statutory tax	$	(568)		$	143
State and foreign income tax, net of federal income tax benefit		150			(178	)
Valuation allowance for deferred tax assets		804			139
Foreign sourced deemed dividend income		175			322
Stock based compensation		(168	)		(250	)
Other		(7	)		18
Total income tax expense (benefit)	$	386		$	194

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets are presented below:

	Year Ended December 31,
(in thousands)	2024			2023
Deferred income tax assets:
Allowance for credit losses	$	4		$	14
Inventory and product return reserves		1,666			1,168
Compensation accruals		2,791			2,750
Accrued liabilities		(22	)		65
Book-over-tax depreciation and amortization		12			18
Foreign net operating loss carryforwards		241			184
U.S. net operating loss carryforwards		2,983			2,899
U.S. credit carryforwards		1,564			1,557
		9,239			8,655
Valuation Allowance		(9,239	)		(8,655	)
Total Deferred Income Tax Assets	$	-		$	-

The valuation allowance for deferred tax assets increased $584,000 and decreased $639,000 during the years ended December 31, 2024 and 2023, respectively.  The net deferred tax assets have a full valuation allowance provided due to uncertainty regarding our ability to utilize such assets in future years.  This full valuation allowance evaluation is based upon our volatile history of losses and the cyclical nature of our industry and capital spending.  Credit carryforwards consist primarily of research and experimental and foreign tax credits.  We intend to continue to reinvest foreign earnings of our operating subsidiaries.

U.S. net operating loss carryforwards are $14.2 million on December 31, 2024 with expiration years from 2024 to 2035.  Utilization of net operating loss and credit carryforwards is subject to certain limitations under Section 382 of the Internal Revenue Code of 1986, as amended. We have not had a Section 382 ownership change, but if we did the usage of these tax assets would have an income usage limitation based on the value of the Company at the time of the change times the federal long-term tax-exempt rate.

The gross changes in uncertain tax positions resulting in unrecognized tax benefits are presented below:

	Year Ended December 31,
	2024		2023
(in thousands)
Unrecognized tax benefits, opening balance	$	430	$	422
Prior period tax position increases		-		(6	)
Additions based on tax positions related to current year		12		14
Unrecognized tax benefits, ending balance	$	442	$	430

Historically, we have incurred minimal interest expense, and no penalties associated with tax matters.  We have adopted a policy whereby amounts related to penalties associated with tax matters are classified as general and administrative expense when incurred and amounts related to interest associated with tax matters are classified as interest income or interest expense.

Tax years that remain open for examination include 2021, 2022, 2023 and 2024 in the United States of America.  In addition, various tax years from 2004 to 2014 may be subject to examination if we utilize the net operating losses and credit carryforwards from those years in our current or future year tax returns.