INCOME TAXES

12 Months Ended

Jan. 31, 2025

INCOME TAXES

INCOME TAXES

10.  INCOME TAXES

Income tax expense (benefit) is based on the following pretax income (loss):

	Years Ended
	January 31,
	2025			2024
Domestic	$	(14,701	)	$	8,648
Foreign		(3,655	)		708
Total	$	(18,356	)	$	9,356

The domestic and foreign pretax income (loss) in the schedule above reflects intercompany dividends paid to the U.S. from international subsidiaries of $4.8 million and $11.4 million for fiscal years ended January 31, 2025 and 2024, respectively.

	Years Ended
	January 31,
	2025			2024
Income Tax Expense (Benefit)
Current:
Federal	$	8		$	17
State and other taxes		29			58
Foreign		3,832			4,674
Total Current Tax Expense	$	3,869		$	4,749
Deferred:
Domestic	$	(3,312	)	$	(186	)
Foreign		(838	)		(633	)
Total Deferred Tax Expense		(4,150	)		(819	)
Total Income Taxes	$	(281	)	$	3,930

The following is a reconciliation of the Federal statutory rate to the Company’s effective income tax rate::

	Years Ended January 31,
	2025			2024
Statutory rate		21.00	%		21.00	%
State Income Taxes, Net of Federal Tax Benefit		1.66	%		0.49	%
Adjustment to Deferred		(5.38	)%		(23.26	)%
GILTI		0.00	%		9.07	%
Foreign Tax Credit – GILTI		0.00	%		(2.42	)%
Goodwill Impairment		(12.06	)%		0.00	%
Section 250 Deduction		0.00	%		(4.92	)%
Permanent Differences		(1.48	)%		0.20	%
Valuation Allowance-Deferred Tax Asset		0.17	%		33.29	%
Foreign Tax Credit		8.19	%		(15.24	)%
Section 78 Gross-up		0.00	%		0.77	%
Argentina Flow Through Loss		(6.14	)%		7.20	%
Withholding Taxes		(1.40	)%		5.72	%
Foreign Rate Differential		(2.11	)%		18.25	%
Change in State Apportionment Rate		(0.01	)%		(1.48	)%
Foreign employee benefits		0.00	%		(1.58	)%
Foreign Dividends Paid to U.S.		(5.48	)%		25.69	%
Foreign Dividends Received Deduction		5.48	%		(25.69	)%
Earnout Adjustment		0.81	%		(5.70	)%
Other		(1.72	)%		0.62	%
Effective Rate		1.53	%		42.01	%

The tax effects of temporary cumulative differences which give rise to deferred tax assets and liabilities are summarized as follows:

	January 31,
	2025			2024
Deferred tax assets:
Inventories	$	661		$	1,545
US tax loss carryforwards, including work opportunity credit		2,364			167
Accounts receivable and accrued rebates		313			295
Accrued compensation and other		326			441
India reserves - US deduction		0			24
Equity based compensation		508			346
Foreign tax credit carry-forward		5,184			4,548
State and local carry-forwards		1,528			1,256
Depreciation and amortization		(4,230	)		(1,846	)
Prepaid expenses		(301	)		(253	)
Right-of-use asset		(1,577	)		(1,590	)
Operating lease liability		1,660			1,672
Foreign carry-forwards		1,029			1,102
Investments		1,404			268
Section 163(j) Interest Expense		293			0
Withholding taxes		(139	)		(383	)
Other		-			83
Deferred tax assets		9,023			7,675
Less valuation allowance		(6,644	)		(6,675	)
Net deferred tax assets	$	2,379		$	1,000

	January 31,
Balance sheet classification	2024		2025
Long-term deferred tax assets	$	6,270	$	3,097
Long-term deferred tax liability	$	3,891	$	2,097

The benefit relating to operating loss, and credit carryforwards included in the above table at January 31, 2025, consisted of:

	Gross Carryforward		Benefit Amount		Valuation Allowance			Expiration Beginning In
State operating loss carryforwards	$	35,834	$	1,528	$	(925	)	2028
Foreign tax credit carryforwards				5,184		(3,509	)	2026
Federal credit carryforwards				167		-		2035
Mexico operating loss carryforwards	$	1,022		307		(307	)	2033
Chile operating loss carryforwards	$	1,625		439		(439	)	Indefinite
Germany operating loss carryforwards	$	2		1		(1	)	Indefinite
UK operating loss carryforwards	$	241		60		(60	)	Indefinite
Total			$	7,686	$	(5,241	)

A significant portion of our net operating loss carryforwards were generated in the state of Alabama prior to the change in apportionment factor rules for that state in 2021 which moved the state to a single sales factor apportionment method. The impact of the state law change significantly reduced our apportionment factor in that state, making it unlikely that we will generate sufficient income allocated to that state in order to utilize the full amount of our net loss carryforwards prior to their expiration.

Indefinite Reinvestment Assertion

The Company generally considers all earnings generated outside of the U.S. to be permanently reinvested offshore, with the exception of countries where cash can be repatriated without withholding taxes, and in China in which the Company previously determined excess cash over what was required to fund operations and growth existed.

During FY25, the Company repatriated $4.8 million from two of its subsidiaries in China. The Company also identified an additional $0.4 million in excess cash in its Chinese operations, which it plans to repatriate in the future. A withholding tax liability of $0.1 million has been established for the expected withholding taxes as of the year ended January 31, 2025.

Income Tax Audits

The Company is subject to US federal income tax, as well as income tax in multiple US state and local jurisdictions and a number of foreign jurisdictions. Returns for the years since FY21 are still open based on statutes of limitation only.

Chinese tax authorities have performed limited reviews on all Chinese subsidiaries as of tax years 2008 through 2024 with no significant issues noted, and we believe our tax positions are reasonably stated as of January 31, 2025. The 2024 tax review will be performed before May 31, 2025 in China.

Change in Valuation Allowance

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. The valuation allowance as of January 31, 2025 and January 31, 2024 was $6.6 million and $6.7 million, respectively.