Note 17 - Income Taxes

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Income Tax Disclosure [Text Block]

17. Income Taxes 

Income Tax Expense

The components of the Company’s income (loss) before income taxes and its provision for (benefit from) income taxes consist of the following:

	Years ended December 31,
	2024			2023		2022
(Loss) income before income taxes
Domestic	$	(4,078	)	$	2,421	$	3,990
Foreign		1,314			735		334
	$	(2,764	)	$	3,156	$	4,324

	Years ended December 31,
	2024		2023			2022
Provision for (benefit from) income taxes:
Current:
Federal	$	4,044	$	4,910		$	3,558
State		1,370		457			551
Foreign		421		312			96
Total current		5,835		5,679			4,205
Deferred:
Federal		-		1,579			(904	)
State		-		(692	)		(402	)
Foreign		229		29			(775	)
Total deferred		229		916			(2,081	)
Total benefit from income taxes	$	6,064	$	6,595		$	2,124

Deferred Tax Assets and Liabilities

Significant components of the Company’s deferred tax assets and liabilities consist of the following:

	December 31,
	2024			2023
Deferred tax assets:
Capital loss carryforward	$	20,714		$	-
Capitalized research expenditures		12,241			8,417
Lease liability		6,555			7,074
Acquisition-related intangible asset		5,959			5,422
Impairment of assets		4,215			-
Stock-based compensation expense		3,908			3,818
Inventory reserves		2,316			2,123
Accrued expenses and other		1,403			550
Compensation accrual		1,202			1,414
Net operating loss carry forwards		650			1,124
Foreign currency exchange		48			121
Gross deferred tax assets		59,211			30,063
Less: Valuation allowance		(45,148	)		(13,754	)
Deferred tax assets	$	14,063		$	16,309

	December 31,
	2024			2023
Deferred tax liabilities:
Acquisition-related intangible asset	$	(42	)	$	(288	)
Depreciation		(6,552	)		(7,695	)
Right of use asset		(6,292	)		(6,837	)
Deferred tax liabilities	$	(12,886	)	$	(14,820	)
Net deferred tax assets	$	1,177		$	1,489

As of December 31, 2024, the Company had no Federal net operating loss (“NOL”) carryforwards, including with the Arthrosurface asset group and a negligible amount of state net NOL carryforwards that will begin to expire in 2039. The Company also had NOL carryforwards in Italy of $2.7 million that do not expire but are limited to 80% of taxable income. As of December 31, 2024, the Company had no federal or state research and development tax credit carryforwards.

The Tax Cuts and Jobs Act (“TCJA”) requires taxpayers to capitalize and amortize research and experimental (“R&D”) starting in the year the year ended December 31, 2022. The Company will amortize these costs for tax purposes over 5 years if the R&D was performed in the United States and over 15 years if the R&D was performed outside the U.S. This change has resulted in the recognition of additional deferred tax assets and increased cash tax liabilities.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. Based upon future reversals of existing taxable temporary differences and projected future taxable income, the Company believes it is more likely than not it will realize its foreign deferred tax assets.

The Company recorded a full valuation allowance on all deferred tax assets in the U.S. as it was determined they are more likely than not to be realizable as of both December 31, 2024 and December 31, 2023. The Company intends to maintain a full valuation allowance until there is sufficient evidence to support release of all or a portion of the allowance. As of December 31, 2024, the Company continues to believe its foreign deferred tax assets are realizable based upon future reversals of existing taxable temporary differences and projected future taxable income in the Company’s foreign jurisdictions.

Undistributed earnings of certain of the Company’s foreign subsidiaries amounted to approximately $0.6 million at December 31, 2024. The Company expects to be able to take a 100% dividend received deduction to offset any U.S. federal income tax liability on the undistributed earnings. Determination of the amount of unrecognized state and local deferred income tax liability is not practicable due to the complexities associated with its hypothetical calculation.

Effective Tax Rate

The reconciliation between the U.S. federal statutory rate and the Company’s effective rate is summarized as follows:

	Years ended December 31,
	2024			2023			2022
Statutory federal income tax rate		21.0	%		21.0	%		21.0	%
State tax expense, net of federal benefit		(52.2	%)		9.5	%		13.0	%
Stock compensation		(17.2	%)		11.8	%		18.4	%
Section 162(m) limitation		(30.1	%)		28.3	%		35.4	%
Change in tax rates and state apportionment		10.4	%		-	%		(3.0	%)
Federal, state and foreign tax credits		22.5	%		(23.1	%)		(13.3	%)
Valuation allowance		(157.3	%)		173.0	%		-	%
Return to provision adjustments		5.5	%		(3.6	%)		(18.9	%)
Tax reserves		(20.9	%)		-	%		-	%
Other permanent items		(1.1	%)		(7.9	%)		(3.5	%)
Effective income tax rate		(219.4	%)		209.0	%		49.1	%

Accounting for Uncertainty in Income Taxes

The Company has $0.6 million and $0 of unrecognized tax benefits for the years ended December 31, 2024 and 2023, respectively. The Company does not anticipate experiencing any significant increase or decrease in its unrecognized tax benefits within the twelve months following December 31, 2024.

The Company files income tax returns in the United States on a federal basis, in certain U.S. states, and in certain foreign jurisdictions. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. With a few exceptions, the Company is no longer subject to income tax examinations for years prior to 2020. In September 2024, the Company was notified by the Italian tax authorities that it had selected the Company’s tax returns for its Italian subsidiary for 2021 for examination and they remain under review.