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Note 18 - Income Taxes | 12 Months Ended
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Nov. 30, 2024
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
18. | INCOME TAXES
Income (Loss) before income taxes consists of the following (in thousands):
|  | Year Ended November 30, |
|  | 2024 |  |  | 2023 |
United States |  | $ | 8,226 |  |  | $ | (7,170 | )
Foreign |  |  | (1,142 | ) |  |  | (857 | )
Total |  | $ | 7,084 |  |  | $ | (8,027 | )
The components of the provision (benefit) for income taxes is as follows (in thousands):
|  | Year Ended November 30, |
|  | 2024 |  |  | 2023 |
Current expense: |  |  |  |  |  |  |  |
Federal |  | $ | 6 |  |  | $ | — |
State |  |  | 123 |  |  |  | 36 |
Foreign |  |  | — |  |  |  | — |
Total current expense: |  |  | 129 |  |  |  | 36 |
Deferred expense (benefit): |  |  |  |  |  |  |  |
Federal |  |  | (5,164 | ) |  |  | 4 |
State |  |  | (673 | ) |  |  | 2 |
Foreign |  |  | — |  |  |  | 123 |
Total deferred expense (benefit) |  |  | (5,837 | ) |  |  | 129 |
Total income tax provision (benefit) |  | $ | (5,708 | ) |  | $ | 165 |
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, |
|  | 2024 |  |  | 2023 |
Income at US statutory rate |  |  | 21.00 | % |  |  | 21.00 | %
State income taxes |  |  | 3.15 | % |  |  | 0.86 | %
Permanent differences |  |  | 15.06 | % |  |  | (6.65 | )%
Foreign rate differential |  |  | (0.96 | )% |  |  | 0.59 | %
Valuation allowance |  |  | (118.75 | )% |  |  | (17.83 | )%
Tax credits |  |  | (4.41 | )% |  |  | — | %
Other |  |  | 4.60 | % |  |  | (0.02 | )%
Total |  |  | (80.31 | )% |  |  | (2.05 | )%
The net deferred income tax asset (liability) balance related to the following (in thousands):
|  | November 30, |
|  | 2024 |  |  | 2023 |
Net operating loss carryforwards |  | $ | 3,438 |  |  | $ | 6,551 |
R&D tax credits |  |  | 318 |  |  |  | — |
Stock compensation |  |  | 1,033 |  |  |  | 1,835 |
Inventory reserve |  |  | 107 |  |  |  | 245 |
Bad debt reserve |  |  | 70 |  |  |  | 130 |
Accrued payroll |  |  | 879 |  |  |  | 434 |
Warranty reserve |  |  | 57 |  |  |  | 109 |
Foreign tax credit carryforwards |  |  | 9 |  |  |  | 9 |
Capital loss carryover |  |  | 115 |  |  |  | — |
Unrealized losses |  |  | 14 |  |  |  | 18 |
Deferred revenue |  |  | 21 |  |  |  | 53 |
Lease liability |  |  | 583 |  |  |  | 410 |
R&E capitalization |  |  | 802 |  |  |  | 399 |
Business interest limitation |  |  | 325 |  |  |  | — |
Equity investments |  |  | — |  |  |  | 136 |
Subtotal deferred tax assets |  |  | 7,771 |  |  |  | 10,329 |
Valuation allowance |  |  | (837 | ) |  |  | (9,271 | )
Total deferred tax assets |  |  | 6,934 |  |  |  | 1,058 |
Depreciation and amortization |  |  | (555 | ) |  |  | (678 | )
Right of use asset |  |  | (542 | ) |  |  | (390 | )
Total deferred tax liabilities |  |  | (1,097 | ) |  |  | (1,068 | )
Net deferred tax assets (liabilities) |  | $ | 5,837 |  |  | $ | (10 | )
The Company notes $0.04 million of a United States state refundable tax credit awarded in the year has been recorded as a component of income before income taxes in accordance with GAAP. As of November 30, 2024, the Company had federal and state NOL carryforwards of approximately $13.4 million and $4.8 million, respectively, which begin to expire in 2029 for federal and state purposes. The federal NOL carryforwards include approximately $10.3 million, which do not expire. The Company had foreign NOL carryforwards of $1.2 million which can be carried forward indefinitely. The Company had federal and state research and development tax credits of approximately $0.2 and $0.1 million, respectively, as of November 30, 2024. The federal and state research and development credits begin to expire in 2044 and 2039, respectively. There were no federal or state research and development tax credits as of November 30, 2023. Deferred tax assets 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, 2024 and 2023, 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 possible to reasonably quantify future taxable income and determined that it is more likely than not that all of the US deferred tax assets will be realized. Accordingly, the Company has reversed most of its US valuation allowance as of November 30, 2024 and maintains a full valuation allowance on the South Africa deferred tax assets as of November 30, 2024. The Company had a full valuation allowance on its worldwide deferred tax assets as of November 30, 2023. Additionally, a deferred tax liability had been established in the United States during the prior year relating to tax basis in excess of book basis on an indefinite lived intangible given the valuation allowance position as of November 30, 2023. At November 30, 2024 and 2023, the Company recognized valuation allowances of $0.8 million and $9.3 million, respectively, related to its deferred tax assets created in those respective years. The net increase/(decrease) of ( $8.5) million and $1.4 million in the valuation allowance reflects the release of the US valuation allowance for November 30, 2024 and a net increase in gross deferred tax asset between November 30, 2023 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, 2024. Based on the analysis, the cumulative ownership change is 12.07%. 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 prior year ended November 30, 2023 and resulted in the capitalization for income tax purposes of R&E costs of $2.0 million. During the current year ended November 30, 2024, the capitalization for income tax purposes of R&E costs is $2.5 million. The Company will amortize these costs for tax purposes over 5 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.

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