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Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

Note 11—Income Taxes

 

The Company does not file a consolidated return with its foreign subsidiaries. The Company files federal and state returns and its foreign subsidiaries file returns in their respective jurisdiction.

 

For the years ended 2025, 2024 and 2023, the provision for income taxes, which included federal, state and foreign income taxes, was an expense of $4.9 million, $5.5 million and $6.8 million, respectively, reflecting effective tax provision rates of 33.1%, 13.9% and 15.2%.

 

The 2025 tax expense of $4.9 million included a discrete tax benefit of $0.2 million primarily comprised of adjustments to uncertain tax positions and return to provision adjustments. Absent these discrete tax benefits, our effective tax rate for 2025 was 34.4%, primarily due to taxes on federal, state and foreign income.

 

For the years ended 2024 and 2023, provision for income taxes includes federal, state and foreign income taxes at effective tax rates of 13.9% and 15.2%, respectively. Exclusive of discrete items, the effective tax provision rate would be 17.4% in 2024 and 21.3% in 2023.

 

As of December 31, 2025 and 2024, the Company had net deferred tax assets of $69.6 million and $70.4 million, respectively, related to U.S. and foreign jurisdictions.

 

Provision for income taxes reflected in the accompanying consolidated statements of operations are comprised of the following (in thousands):

 

   Year ended December 31, 
   2025   2024   2023 
Current income tax expense            
Federal  $925   $4,204   $11,935 
State and local   253    569    2,167 
Foreign   2,891    3,010    3,070 
Total current income tax expense   4,069    7,783    17,172 
Deferred income tax expense (benefit)               
Federal   1,123    (2,340)   (8,989)
State and Local   44    247    (1,358)
Foreign   (342)   (158)   8 
Total deferred income tax expense (benefit)   825    (2,251)   (10,339)
                
Total income tax expense  $4,894   $5,532   $6,833 

The components of deferred tax assets/(liabilities) are as follows (in thousands):

 

   Year ended December 31, 
   2025   2024 
Deferred Income Tax Assets:        
Reserve for sales allowances and possible losses  $1,252   $956 
Accrued expenses   1,904    1,940 
Prepaid royalties   4    39 
Accrued royalties   1,823    1,833 
Inventory   11,278    12,876 
State income taxes   106    224 
Property and equipment   1,819    1,752 
Goodwill and intangibles   447    728 
Share based compensation   849    1,277 
Interest limitation   1,997    2,243 
Lease obligation   11,051    12,766 
Federal and state net operating loss carryforwards   34,424    34,355 
Foreign net operating loss carryforwards   —    110 
Credit carryforwards   28    3 
Section 174 Capitalization   11,494    10,884 
Other   1,674    1,567 
Total Deferred Income Tax Assets   80,150    83,553 
           
Deferred Income Tax Liabilities:          
Foreign net operating loss carryforwards   (6)   — 
Undistributed foreign earnings   (310)   (428)
Operating lease right-of-use assets   (9,551)   (12,013)
Total Deferred Income Tax Liabilities   (9,867)   (12,441)
Valuation allowance   (714)   (718)
Total Net Deferred Income Tax Assets  $69,569   $70,394 

 

The provision for income taxes varies from the U.S. federal statutory rate. The Company has elected to adopt the guidance in ASU No. 2023-09 on a prospective basis.

 

The following table is a reconciliation of the U.S. federal statutory rate of 21.0% to the Company’s effective rate for the year ended December 31, 2025, in accordance with guidance in ASU No. 2023-09.

   Year Ended
December 31, 2025		 
   Amount ($)   Percent (%) 
Provision for income taxes at U.S. federal statutory rate  $3,101    21.0%
State and local income taxes, net of federal income tax effect1   209    1.4 
Foreign tax effects          
Hong Kong          
Statutory tax rate difference between Hong Kong and U.S.   (384)   (2.6)
Other   (12)   (0.1)
Other foreign jurisdictions   480    3.2 
Effect of changes in tax laws or rates enacted in the current period   —    — 
Effect of cross-border tax laws          
Foreign derived intangible income (FDII)   (772)   (5.2)
Other   28    0.2 
Tax Credits          
R&D tax credits   (79)   (0.5)
Changes in valuation allowances   1    — 
Nontaxable or nondeductible items          
Section 162(m)   2,766    18.7 
Stock-based compensation   (158)   (1.1)
Other   145    1.0 
Changes in unrecognized tax benefits   (649)   (4.4)
Other adjustments   218    1.5 
Effective Tax Rate  $4,894    33.1%
1 State and local taxes in California, New York and New York City made up the majority of the tax effect in this category.

 

The following table is a reconciliation of the U.S. federal statutory rate of 21.0% to the Company’s effective rate for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU No. 2023-09.

 

   Year ended December 31, 
   2024   2023 
Federal income tax expense   21.0%   21.0%
State income tax expense, net of federal tax effect   1.8    2.0 
Effect of differences in U.S. and foreign statutory rates   (1.3)   (1.1)
Uncertain tax positions   0.4    0.6 
Provision to return   (4.4)   (0.1)
Other deferred adjustments   (0.2)   (5.7)
Change in tax rate   0.8    0.1 
GILTI   5.2    — 
Foreign derived intangible income   (8.6)   (9.8)
Other non-deductible expenses   (3.6)   (0.7)
Unrealized loss   —    4.2 
Section 162(m)   8.1    6.4 
R&D credit   (1.0)   (1.5)
Foreign tax credit   (4.8)   — 
Undistributed foreign earnings   (0.2)   0.1 
Valuation allowance   —    — 
Other   0.7    (0.3)
    13.9%   15.2%

 

Deferred taxes result from temporary differences between tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. The temporary differences result from costs required to be capitalized for tax purposes by the U.S. Internal Revenue Code (“IRC”), and certain items accrued for financial reporting purposes in the year incurred but not deductible for tax purposes until paid.

The amounts of cash taxes paid during the year ended December 31, 2025 are as follows:

 

   2025 
Federal  $1,361 
State   114 
Foreign     
Hong Kong   2,279 
Netherlands   300 
Mexico   574 
Other   383 
Total income taxes paid, net of amounts refunded  $5,011 

  

Total income taxes paid, net of amounts refunded for the years ended December 31, 2024 and 2023 are presented on the consolidated statement of cash flows.

 

The components of income before provision for income taxes are as follows (in thousands):

 

   Year ended December 31, 
   2025   2024   2023 
Domestic  $2,711   $24,801   $28,552 
Foreign   12,054    14,931    16,394 
   $14,765   $39,732   $44,946 

 

The Company uses a recognition threshold and measurement process for recording in the consolidated financial statements uncertain tax positions (“UTP”) taken or expected to be taken in a tax return.

 

The following table provides further information of UTPs that would affect the effective tax rate, if recognized, as of December 31, 2025 (in thousands):

 

Balance, December 31, 2022  $2,767 
Additions based on tax positions related to the current year   344 
Additions for tax positions of prior years   797 
Settlements   (929)
Balance, December 31, 2023   2,979 
Additions based on tax positions related to the current year   203 
Additions for tax positions of prior years   99 
Settlements   (152)
Balance, December 31, 2024   3,129 
Additions based on tax positions related to the current year   71 
Additions for tax positions of prior years   (222)
Settlements   (2,137)
Balance, December 31, 2025  $841 

 

Current interest on uncertain income tax liabilities is recognized as a component of the income tax provision recognized in the consolidated statements of operations. During 2025 and 2024, the Company recognized $5 thousand and $173 thousand of interest expense related to UTPs, respectively.

 

The Company does not expect its gross unrecognized tax benefits to significantly change within the next 12 months.

 

Tax years 2022 through 2024 remain subject to Federal examination in the United States. The tax years 2021 through 2024 are generally still subject to examination in the various states. Furthermore, all net operating losses and tax credit carryforwards are still subject to review given that the statute of limitation for these items would begin in the year of utilization. The tax years 2019 through 2024 are still subject to examination in Hong Kong. In the normal course of business, the Company is audited by federal, state and foreign tax authorities.

 

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets by jurisdiction. The Company is required to establish a valuation allowance for the U.S. deferred tax assets and record a charge to income if Management determines, based upon available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets may not be realized.

 

Based on the Company’s evaluation of all positive and negative evidence, as of December 31, 2025, a valuation allowance of $0.7 million has been recorded against the deferred tax assets that more likely than not will not be realized. Changes in the valuation allowance were immaterial for the years ended December 31, 2025, 2024, and 2023. For the year ended December 31, 2025, the valuation allowance remained approximately the same as the $0.7 million recorded at December 31, 2024. The 2025 and 2024 net deferred tax assets of $69.6 million and $70.4 million, respectively, consist of the net deferred tax assets in the US and foreign jurisdictions, where the Company is in a cumulative income position.

Pursuant to the Internal Revenue Code of 1986, as amended (the “Code”) Sections 382 and 383, annual use of a company’s NOL and tax credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% within a three-year period. The amount of the annual limitation is determined based on the value of the company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. If limited, the related tax asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. The Company had established a valuation allowance as the realization of such deferred tax assets had not met the more likely than not threshold requirement.

 

At December 31, 2025, the Company has U.S. federal net NOLs, of approximately $148.6 million, which will begin to expire in 2033. At December 31, 2025, the Company has state NOLs of approximately $48.0 million, which will begin to expire in 2025.

 

The Company maintained undistributed earnings overseas as of December 31, 2025. As of December 31, 2025, the Company believed the funds held by all non-U.S. subsidiaries will be permanently reinvested outside of the U.S., with the exception of Hong Kong. As a result of tax reform, the Company’s unrepatriated earnings are no longer subject to federal income tax in the U.S. when distributed.