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Note 18 - Income Taxes
 12 Months Ended
Nov. 30, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

18.

INCOME TAXES

 

Loss before income taxes consists of the following (in thousands):

 

  

Year Ended November 30,

 
  

2023

  

2022

 

United States

 $(7,170) $(8,185)

Foreign

  (857)  534 

Total

 $(8,027) $(7,651)

 

The components of the provision (benefit) for income taxes is as follows (in thousands):

 

  

Year Ended November 30,

 
  

2023

  

2022

 

Current expense:

        

Federal

 $—  $— 

State

  36   83 

Foreign

  —   271 

Total current expense:

  36   354 
         

Deferred expense (benefit):

        

Federal

  4   3 

State

  2   1 

Foreign

  123   (124)

Total deferred expense (benefit)

  129   (120)
         

Total income tax provision (benefit)

 $165  $234 

 

 

A reconciliation of the Company’s statutory income tax rate to the Company’s effective income tax rate is as follows:

 

  

Year Ended November 30,

 
  

2023

  

2022

 

Income at US statutory rate

  21.00%  21.00%

State income taxes

  0.86%  (1.20)%

Permanent differences

  (6.65)%  (2.79)%

Foreign rate differential

  0.59%  (0.49)%

Valuation allowance

  (17.83)%  (16.96)%

Other

  (0.02)%  (2.62)%

Total

  (2.05)%  (3.06)%

 

The net deferred income tax asset (liability) balance related to the following (in thousands):

 

  

November 30,

 
  

2023

  

2022

 

Net operating loss carryforwards

 $6,551  $6,515 

Stock compensation

  1,835   1,192 

Inventory reserve

  245   169 

Bad debt reserve

  130   — 

Accrued payroll

  434   411 

Warranty reserve

  109   174 

Foreign tax credit carryforwards

  9   9 

Unrealized losses

  18   18 

Deferred revenue

  53   35 

Lease liability

  410   507 

R&E capitalization

  399   — 

Equity investments

  136   — 

Subtotal deferred tax assets

  10,329   9,031 

Valuation allowance

  (9,271)  (7,839)

Total deferred tax assets

  1,058   1,192 
         

Depreciation and amortization

  (678)  554 

Right of use asset

  (390)  509 

Total deferred tax liabilities

  (1,068)  1,063 
         

Net deferred tax assets (liabilities)

 $(10) $129 

 

The Company notes $0.04 million of a United States state refundable tax credit awarded in fiscal year 2023 has been booked above the income tax line in accordance with US GAAP principles.  As of November 30, 2023, the Company had federal and state net operating losses ("NOLs") carryforwards of approximately $27.8 million and $7.3 million, respectively, which begin to expire in 2025 for federal and state purposes. The federal NOL carryforwards include approximately $13.2 million, which do not expire.  The Company had foreign NOL carryforwards of $0.3 million which can be carried forward indefinitely.  Deferred tax assets, which are offset by deferred tax liabilities, are presented in other assets in the accompanying Consolidated Balance Sheets.

 

Future realization of the tax benefits of existing temporary differences and NOL carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of November 30, 2023 and 2022, respectively, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company determined that it was not possible to reasonably quantify future taxable income and determined that it is more likely than not that all of the worldwide deferred tax assets will not be realized. Accordingly, the Company maintained a full valuation allowance as of  November 30, 2023 and 2022 and a full valuation allowance on the US deferred tax assets as of  November 30, 2023 and 2022.

 
Additionally, a deferred tax liability has been established in the United States entity during the fiscal year ended  November 30, 2023 relating to tax basis in excess of book basis on an indefinite lived intangible.  At  November 30, 2023 and 2022, the Company recognized valuation allowances of $9.3 million and $7.8 million, respectively, related to its deferred tax assets created in those respective years. The net increase of $1.4 million and $1.2 million in the valuation allowance reflects the net increase in gross deferred tax asset between  November 30, 2023 and 2022 and the prior fiscal years, respectively. 

 

Pursuant to Internal Revenue Code Section 382, use of NOL carryforwards may be limited if the Company experiences a cumulative change in ownership of greater than 50% in a moving three-year period. Ownership changes could impact the Company’s ability to utilize the NOL carryforwards remaining at an ownership change date. The Company last completed a Section 382 analysis regarding whether an ownership change had occurred for Company through November 30, 2021. Based on the analysis, the cumulative ownership change is 17.08%. As a result, no resulting limitation of NOL carryforwards has been considered in determining the full valuation allowance against the related deferred tax assets as noted above.

 

The Tax Cuts and Jobs Act of 2017 requires taxpayers to capitalize and amortize, rather than deduct, research and experimental, or R&E, expenditures under section 174 for tax years beginning after December 31, 2021. This rule became effective for the Company during the fiscal year ended November 30, 2023 and resulted in the capitalization for income tax purposes of R&E costs of $2.0 million. The Company will amortize these costs for tax purposes over five years if the R&E was performed in the U.S. and over 15 years if the R&E was performed outside the U.S.