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Income Taxes
 12 Months Ended
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.