Note 6 - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 6. INCOME TAXES

The income tax expense for the years ended December 31, 2023 and 2022 consists of the following:

	2023			2022
Current
Federal	$	388		$	855
State		75			55
Foreign		491			557
Deferred
Federal		(2,360	)		-
State		(241	)		-
Foreign		239			-
Income Tax Expense	$	(1,408	)	$	1,467

The statutory rate reconciliation for the years ended December 31, 2023 and 2022 is as follows:

	2023			2022
Statutory Rate	$	1,148		$	572
State Income Tax		79			41
Effect of Foreign Operations		(124	)		(82	)
Research and Development		(316	)		-
Change in State Deferred Rate		-			29
Valuation Allowance		(2,563	)		587
Maquiladora Tax		158			153
US Permanent Differences		(44	)		(28	)
Federal Tax Credits		-			(272	)
Global Intangible Low-Taxed Income Effect		7			301
Withholding Tax		318			122
IRS Payable		-			17
Other		(71	)		27
	$	(1,408	)	$	1,467

Income and loss from operations before income taxes was derived from the following sources:

	2023		2022
Domestic	$	3,307	$	990
Foreign		2,159		2,487
	$	5,466	$	3,477

Deferred tax (liabilities) assets as of December 31, 2023 and 2022, consist of the following:

	2023			2022
Deferred Tax
Inventory	$	423		$	391
Accrued Bonus		440			462
Stock-Based Compensation and Equity Appreciation Rights		206			159
Other Accruals		415			675
Lease Accounting Lease Liability		1,229			1,351
Capitalized Research Expenses		1,007			318
Tax Credit Carryforwards		94			156
Intangibles		477			515
Other		139			208
Total		4,430			4,235
Valuation Allowance		-			(2,563	)
Deferred Tax Assets		4,430			1,672
Lease Accounting Lease Asset		(1,168	)		(1,301	)
Withholding Tax		(239	)		-
Prepaid Expenses		(213	)		(143	)
Property and Equipment		(276	)		(161	)
Other		(133	)		(67	)
Deferred Tax Liabilities		(2,029	)		(1,672	)
Net Deferred Tax Assets	$	2,401		$	-

We recorded a valuation allowance of $2,563 against our net deferred tax assets as of December 31, 2022. We regularly assess the need for a valuation allowance related to our deferred income tax assets to determine, based on the weight of the available positive and negative evidence, whether it is more likely than not that some or all of such deferred assets will not be realized. In our assessments, the Company considers recent financial operating results, potential sources of taxable income, the reversal of existing taxable differences, taxable income in prior carryback years, if permitted under tax law, and tax planning strategies. Based on our most recent assessment, for the year ended December 31, 2023, we released $2,563 of the valuation allowance on our domestic deferred income tax assets as it more likely than not we will realize them, based on our ability to demonstrate an estimate of objectively verifiable future income. This estimate of future income, along with our assessments of the other positive and negative evidence considered, supports the release of the valuation allowance. Our consolidated balance sheet as of December 31, 2023 has a deferred tax asset of $2,641 related to our US taxable operations and a $240 deferred tax liability included other long-term liabilities related to our Chinese taxes, for a net deferred tax asset of $2,401.

As of December 31, 2023, for U.S. state purposes, we have a Minnesota R&D credit carry forward of $120, which will begin to expire in 2027.

The Tax Cuts and Jobs Act ("TCJA") was enacted on December 22, 2017 and includes the requirement to capitalize and amortize over years research and experimental expenditures beginning in 2022. Prior to 2022, we expensed these costs as incurred for tax purposes. The capitalization of the research and experimental expenditures resulted in a deferred tax asset of $318, which was fully offset by a valuation allowance, resulting in no significant impact to income tax expense as of December 31, 2022. As of December 31, 2023 the deferred tax asset associated with capitalized research and experimental expenditures was $1,007.

The tax effects from uncertain tax positions can be recognized in our consolidated financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The following tables set forth changes in our total gross unrecognized tax benefit liabilities, excluding accrued interest, for the years ended December 31, 2023 and 2022:

Balance as of December 31, 2022	$	50
Tax Positions - Additions		81
Tax Positions - Reductions		-
Balance as of December 31, 2023	$	131

Our policy is to accrue interest related to potential underpayment of income taxes within the provision for income taxes. The liability for accrued interest as of December 31, 2023 and 2022 was not significant. Interest is computed on the difference between our uncertain tax benefit positions and the amount deducted or expected to be deducted in our tax returns.

We are subject to income taxes in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, we are no longer subject to federal and state and local income tax examinations for years before 2019.