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Income Taxes

12 Months Ended

Dec. 31, 2024

Income Taxes

Income Taxes

5.           Income Taxes

The significant components of the provision for income taxes for the years ended December 31, 2024 and 2023 were as follows (in thousands):

​

​	​	​	​	​	​	​
​		2024			2023
Current income tax provision:		​			​
Foreign	​	$	525	​	$	1,181
Federal	​		126	​		120
State and local	​		768	​		3
​	​		1,419	​		1,304
Deferred income tax provision:	​			​
Foreign	​		(294)	​		(286)
Federal	​		(4,059)	​		10
State and local	​		(1,256)	​		-
​	​		(5,609)	​		(276)
​	​	​	​	​	​	​
Provision for income taxes	​	$	(4,190)	​	$	1,028

​

The reconciliation of the U.S. statutory rate with the Company’s effective tax rate for the years ended December 31, 2024 and 2023 is summarized as follows:

​

​	​	​	​	​	​
​		2024		2023
Federal income tax expense at statutory rate		21.0	%	21.0	%
Effect of:		​		​	​
Section 162 (m)		57.6		452.0	​
Global Intangible Low-Taxed Income (GILTI)	​	3.1	​	0.0	​
Tax effects of foreign operations		1.5		562.6	​
Return to provision true up		0.8		264.4	​
Foreign operations permanent differences - foreign exchange gains and losses		0.6		76.9	​
Withholding tax	​	0.5	​	106.6	​
Research and development credit	​	-	​	(67.3)	​
Tax effect of intercompany settlement	​	-	​	(234.0)	​
Deemed interest		(0.6)		(149.2)	​
Foreign rate differential		(0.9)		(102.5)	​
State income tax net of federal benefit		(1.8)		0.1	​
Increase (decrease) in unrecognized tax benefits (ASC 740)	​	(3.8)	​	199.6	​
Change in valuation allowance		(30.7)		578.6	​
Effect of stock-based compensation	​	(64.8)	​	(961.6)	​
Other	​	0.4	​	(7.6)	​
Effective tax rate		(17.1)	%	739.6	%

​

Deferred tax assets and liabilities are classified as non-current. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2024 and 2023 were as follows (in thousands):

​

​	​	​	​	​	​	​
​	​	December 31,
​		2024			2023
Deferred income tax assets:		​			​
Allowances not currently deductible	​	$	459	​	$	283
Depreciation and amortization	​		-	​		58
Equity compensation not currently deductible	​		886	​		2,098
Net operating loss carryforwards	​		7,755	​		10,514
Expenses not deductible until paid	​		3,274	​		1,972
Other	​		87	​		585
Total gross deferred income tax assets before valuation allowance	​		12,461	​		15,510
Valuation allowance	​		(4,969)	​		(13,769)
Total Deferred income tax assets, net	​	​	7,492	​	​	1,741
​	​	​	​	​	​	​
Deferred income tax liabilities:	​			​
Amortization of Intangibles	​	​	(32)	​	​	-
Other	​		-	​		(22)
Total Deferred income tax liabilities	​		(32)	​		(22)
​	​	​	​	​	​	​
Net deferred income tax assets	​	$	7,460	​	$	1,719
​	​	​	​	​	​	​
Total deferred income tax assets, net	​	$	7,492	​	$	1,741
Total deferred income tax liabilities	​	​	(32)	​	​	(22)
​	​	​	​	​	​	​
Net deferred income tax assets, net	​	$	7,460	​	$	1,719

​

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realizable. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are available. As of December 31, 2024, the Company continues to maintain a valuation allowance on all of the Company’s Canadian and German subsidiaries’ deferred tax assets.

The Company maintained a valuation allowance of approximately $5.0 million and $13.8 million as of December 31, 2024 and 2023, respectively. The net change in the total valuation allowance was a decrease of $8.8 million and an increase of $0.8 million for the years ended December 31, 2024 and December 31, 2023, respectively.

The change is due to the Company’s assessment during the third and fourth quarters of 2024, where the Company determined it was more likely than not that the Company would be able to realize the benefit of the deferred tax assets in the United States and the United Kingdom, respectively, resulting in the release of the valuation allowance. In reaching this determination, the Company considered the growing trend of profitability over the last three years in the United States and the United Kingdom, as well as its expectations regarding the generation of future taxable income.

The remaining valuation allowance as of December 31, 2024 relates to the Company’s Canadian and German subsidiaries’ deferred tax assets.

Despite the access to the overseas earnings and the resulting toll charge, the Company intends to indefinitely reinvest the foreign earnings in our foreign subsidiaries on account of the foreign jurisdiction withholding tax that the Company has to incur on the actual remittances. Unremitted earnings of foreign subsidiaries amounted to approximately $53.9 million at December 31, 2024. If such earnings are repatriated in the future or are no longer deemed to be indefinitely reinvested, the Company would have to accrue the applicable amount of foreign jurisdiction withholding taxes associated with such remittances.

United States and foreign components of income (loss) before provision for income taxes for each of the years ended December 31, were as follows (in thousands):

​

​	​	​	​	​	​	​
​	​	2024		​	2023
United States	​	$	21,692	​	$	2,025
Foreign	​		2,793	​		(1,886)
Totals	​	$	24,485	​	$	139

​

At December 31, 2024, the Company had available U.S. federal & state net operating loss (NOL) carryforwards of approximately $10.6 million and $6.5M, respectively. The Company had research and development credit carryforwards of approximately $0.1 million. The Federal income tax NOL carryforwards expire at various times from the year 2034 through the year 2035 and the research and development credit expires in 2042. The state income tax NOL carryforwards begin expiring at various times starting in 2025. The deferred tax benefit for these NOL carryforwards and R&D credit carryforwards have been recognized for financial statement purposes.

Under the CARES Act, the Internal Revenue Code was amended to allow for federal NOL carrybacks for five years to offset previous years’ taxable income or for the NOL to be carried forward indefinitely to offset 80% of taxable income for tax years 2021 and thereafter. As of the date the financial statements were issued, the state NOL carryforwards, if not utilized, will expire beginning in 2025.

On December 31, 2024, the Company’s Agility subsidiary in the U.K. had available NOL carryforwards of approximately $0.4 million. The deferred tax benefit for these NOL carryforwards has been recognized for financial statement purposes.

On December 31, 2024, the Company’s Canadian subsidiaries had available Canadian NOL carryforwards of approximately $23.2 million that will begin to expire in 2037 and research and development credits of approximately $1.3 million that have no expiry. The potential benefits from these balances have not been recognized for financial statement purposes.

On December 31, 2024, the Company’s German subsidiary had available NOL carryforwards of approximately $0.7 million. The potential benefits from these balances have not been recognized for financial statement purposes.

The Company is subject to Federal income tax, as well as income tax in various states and foreign jurisdictions. The Company has open tax years for U.S. Federal and state taxes from 2020 through 2024. Various foreign subsidiaries have open tax years from 2005 through 2024, some of which are under audit by local tax authorities. The Company believes that its accruals for uncertain tax positions as of December 31, 2024 under ASC 740, Income Taxes are adequate to cover the Company’s income tax exposures.

The following table represents a roll forward of the Company’s unrecognized tax benefits and associated interest for the years ended (in thousands):

​

​	​	​	​	​	​	​
​	​	Unrecognized Tax
​	​	Benefits
​	​	December 31,
​		2024			2023
Balance at beginning of the year	​	$	1,942	​	$	1,680
Decrease for prior year tax positions	​		(1,309)	​		(68)
Increase for current year tax positions	​		341	​		247
Interest accrual	​		80	​		97
Foreign currency remeasurement	​		(55)	​		(14)
Balance at end of the year	​	$	999	​	$	1,942

​

The Company had reserves for uncertain tax positions of $1.0 million and $1.9 million as of December 31, 2024, and 2023, respectively, where the ultimate tax determination is uncertain due to complexities of tax laws. The decrease in unrecognized tax benefits resulted from reversal of accruals of $1.3 million in unrecognized tax benefits for a subsidiary because the examination period for an open tax year had prescribed. The Company expects that unrecognized tax benefits as of December 31, 2024 and December 31, 2023, if recognized, would have a material impact on the Company’s effective tax rate.

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The entire disclosure for income tax.

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