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v3.25.1

Income Taxes | 12 Months Ended
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Jan. 31, 2025
Income Tax Disclosure [Abstract] |
Income Taxes | Note 16—Income Taxes The components of income (loss) before income taxes are as follows:
|  | 2025 |  |  | 2024 |  |  | 2023 |
(In thousands) |  |  |  |  |  |  |  |  |
Domestic |  | $ | 5,605 |  |  | $ | 5,448 |  |  | $ | 1,773 |
Foreign |  |  | (17,892 | ) |  |  | 625 |  |  |  | 1,637 |
|  | $ | (12,287 | ) |  | $ | 6,073 |  |  | $ | 3,410 |
The components of the provision for income taxes are as follows:
|  | 2025 |  |  | 2024 |  |  | 2023 |
(In thousands) |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | 1,125 |  |  | $ | 966 |  |  | $ | 902 |
State |  |  | 134 |  |  |  | 71 |  |  |  | 313 |
Foreign |  |  | 153 |  |  |  | 420 |  |  |  | 870 |
|  |  | 1,412 |  |  |  | 1,457 |  |  |  | 2,085 |
Deferred: |  |  |  |  |  |  |  |  |
Federal |  | $ | (621 | ) |  | $ | (32 | ) |  | $ | (1,053 | )
State |  |  | (13 | ) |  |  | 2 |  |  |  | (315 | )
Foreign |  |  | 1,424 |  |  |  | (48 | ) |  |  | 32 |
|  |  | 790 |  |  |  | (78 | ) |  |  | (1,336 | )
|  | $ | 2,202 |  |  | $ | 1,379 |  |  | $ | 749 |
Total income tax provision differs from the expected tax provision as a result of the following:
|  | 2025 |  |  | 2024 |  |  | 2023 |
(In thousands) |  |  |  |  |  |  |  |  |
Income Tax Provision at Statutory Rate |  | $ | (2,579 | ) |  | $ | 1,275 |  |  | $ | 716 |
Goodwill Impairment |  |  | 2,814 |  |  |  | — |  |  |  | — |
Portugal Tax Incentives - Valuation Allowance |  |  | 2,373 |  |  |  | — |  |  |  | — |
Foreign Rate Differential |  |  | 163 |  |  |  | 197 |  |  |  | 157 |
Change in Reserves Related to ASC 740 Liability |  |  | 133 |  |  |  | 60 |  |  |  | 93 |
Transaction Costs |  |  | 121 |  |  |  | — |  |  |  | — |
State Taxes, Net of Federal Tax Effect |  |  | 96 |  |  |  | 56 |  |  |  | (2 | )
Meals and Entertainment |  |  | 21 |  |  |  | 14 |  |  |  | — |
Change in Valuation Allowance |  |  | (68 | ) |  |  | 73 |  |  |  | 182 |
Share Based Compensation |  |  | (74 | ) |  |  | (43 | ) |  |  | (52 | )
Foreign Derived Intangible Income |  |  | (151 | ) |  |  | (98 | ) |  |  | (180 | )
R&D Credits |  |  | (205 | ) |  |  | (160 | ) |  |  | (160 | )
Return to Provision Adjustment |  |  | (363 | ) |  |  | 12 |  |  |  | (22 | )
Other |  |  | (79 | ) |  |  | (7 | ) |  |  | 17 |
|  | $ | 2,202 |  |  | $ | 1,379 |  |  | $ | 749 |
Our effective tax rate for fiscal 2025 was (17.9)% compared to 22.7% in fiscal 2024 and 22.0% in fiscal 2023. The decrease in the effective tax rate in fiscal 2025 from fiscal 2024 is primarily related to the decrease in pre-tax book income and the federal income tax provision associated with the goodwill impairment and MTEX losses, the decrease in return to provision adjustments, and the decrease in the valuation allowance associated with China losses. This decrease was partially offset by other factors increasing the effective tax rate such as the valuation allowance recorded on Portuguese tax credits, goodwill impairment recorded on MTEX for the PI reporting segment, and transaction costs associated with the MTEX acquisition. The increase in the effective tax rate in fiscal 2024 from fiscal 2023 is primarily related to the impact of the valuation allowance recorded on China net operating losses, the increase in the current provision for state and local taxes, and the change in the foreign rate differential. This increase was partially offset by other factors decreasing the effective tax rate such as foreign derived intangible income (“FDII”) deduction, share based compensation, and the R&D tax credit. The components of deferred income tax expense arise from various temporary differences and relate to items included in the statement of income. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities are as follows:
|  | January 31, |
(In thousands) |  | 2025 |  |  | 2024 |
Deferred Tax Assets: |  |  |  |  |  |
Honeywell Royalty Liability |  | $ | 4,280 |  |  | $ | 3,561 |
Section 174 Capitalization |  |  | 2,894 |  |  |  | 1,981 |
Portugal Tax Incentives |  |  | 2,373 |  |  |  | — |
Inventory |  |  | 1,994 |  |  |  | 2,242 |
State R&D Credits |  |  | 1,721 |  |  |  | 2,160 |
Net Operating Loss |  |  | 886 |  |  |  | 199 |
Share-Based Compensation |  |  | 575 |  |  |  | 590 |
Portugal Statutory Tax Adjustments |  |  | 541 |  |  |  | — |
Compensation Accrual |  |  | 285 |  |  |  | 276 |
Foreign Tax Credit |  |  | 154 |  |  |  | 154 |
Bad Debt |  |  | 115 |  |  |  | 134 |
Warranty Reserve |  |  | 120 |  |  |  | 171 |
ASC 842 Adjustment – Lease Liability |  |  | 87 |  |  |  | 38 |
Deferred Service Contract Revenue |  |  | — |  |  |  | 100 |
Unrecognized State Tax Benefits |  |  | — |  |  |  | 49 |
Other |  |  | 563 |  |  |  | 381 |
|  |  | 16,588 |  |  |  | 12,036 |
Deferred Tax Liabilities: |  |  |  |  |  |
Accumulated Tax Depreciation in Excess of Book Depreciation |  |  | 1,632 |  |  |  | 1,491 |
Intangibles |  |  | 1,544 |  |  |  | 989 |
Purchase Price Accounting |  |  | 270 |  |  |  | — |
Portugal Statutory Tax Adjustments |  |  | 110 |  |  |  | — |
ASC 842 Adjustment – Lease Liability |  |  | 87 |  |  |  | 33 |
Other |  |  | 154 |  |  |  | 206 |
|  |  | 3,797 |  |  |  | 2,719 |
Subtotal |  |  | 12,791 |  |  |  | 9,317 |
Valuation Allowance |  |  | (4,400 | ) |  |  | (2,534 | )
Net Deferred Tax Assets |  | $ | 8,391 |  |  | $ | 6,783 |
Deferred taxes are reflected in the consolidated balance sheet as follows:
|  | January 31, |
(In thousands) |  | 2025 |  |  | 2024 |
Deferred Tax Assets |  |  | 8,431 |  |  |  | 6,882 |
Deferred Tax Liabilities |  |  | (40 | ) |  |  | (99 | )
Total Net Deferred Tax Assets |  | $ | 8,391 |  |  | $ | 6,783 |
The valuation allowances of $4.4 million at January 31, 2025 and $2.5 million at January 31, 2024, relate to Rhode Island research and development tax credit carryforwards, foreign tax credit carryforwards, Portugal tax credits, and China’s net operating losses that are expected to expire unutilized. At January 31, 2025, we had net operating loss carryforwards of $0.9 million, which expire in 2027 through 2045 and interest expense carryforwards of $11,700, which carry forward indefinitely. At January 31, 2025, we had state research credit carryforwards of approximately $1.7 (net of federal benefit) million which expire in 2026 through 2031. Additionally, we had $0.2 million of foreign tax credits. We maintain a full valuation allowance against these credits as we expect these credits to expire unused. Due to the acquisition of MTEX that occurred during 2024, we acquired tax attributes of $2.3 million related to tax incentives associated with the System of Tax Incentives in Business Research and Development ("SIFIDE") and Investment Support Tax Regime ("RFAI"). The SIFIDE incentive is a research and development credit for Portuguese tax resident companies carrying out commercial, industrial, or agricultural activities, and non-resident companies with a permanent establishment in the Portuguese territory. The RFAI is a tax regime for investment promotion, in which an incentive is given to companies that invest in certain regions (capped at 50% of the corporate income tax due) of 30% (for qualified investments lower than € 15 million) or 10% (for the part of qualified investments exceeding that limit) of the qualified investment. The credits have carryforward periods of 10 years and 12 years for SIFIDE and RFAI, respectively. We maintain a full valuation allowance against these credits as we expect these credits to expire unused. We believe that it is reasonably possible that some unrecognized tax benefits, accrued interest and penalties could decrease income tax expense in the next year due to either the review of previously filed tax returns or the expiration of certain statutes of limitation. The changes in the balances of unrecognized tax benefits, excluding interest and penalties are as follows:
|  | 2025 |  |  | 2024 |  |  | 2023 |
(In thousands) |  |  |  |  |  |  |  |  |
Balance, beginning of the year |  | $ | 505 |  |  | $ | 414 |  |  | $ | 303 |
Increases in prior period tax positions |  |  | 10 |  |  |  | — |  |  |  | 24 |
Increases in current period tax positions |  |  | 143 |  |  |  | 162 |  |  |  | 136 |
Reductions related to lapse of statutes of limitations |  |  | (19 | ) |  |  | (71 | ) |  |  | (49 | )
Balance, end of the year |  | $ | 639 |  |  | $ | 505 |  |  | $ | 414 |
During fiscal 2025 and 2024, we released $19,000 and $71,000, respectively, of uncertain tax positions including accrued interest and penalties relating to a change in various unrecognized tax positions. We have accrued potential interest and penalties of $45,000 included in income taxes payable in the accompanying consolidated balance sheet at January 31, 2025. We and our subsidiaries file income tax returns in U.S. federal jurisdictions, various state jurisdictions, and various foreign jurisdictions. In fiscal 2024, we released $6,000 of state nexus positions as a result of the expiration of the statute of limitations. U.S. income taxes have not been provided on $8.2 million of undistributed earnings of our foreign subsidiaries since it is our intention to permanently reinvest such earnings offshore. If the earnings were distributed in the form of dividends, we would not be subject to U.S. tax as a result of the TCJA but, could be subject to foreign income and withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practical.

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