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INCOME TAXES | 12 Months Ended
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Dec. 31, 2024
INCOME TAXES [Abstract] |
INCOME TAXES | 7. INCOME TAXES The provision for income taxes consists of the following:
(in thousands) |  | Year Ended December 31, |
Income Tax Provision (Benefits) |  | 2024 |  |  | 2023 |
Current provision (benefit): |  |  |  |  |  |
Federal |  | $ | 261 |  |  | $ | 892 |
State |  |  | 71 |  |  |  | 181 |
Foreign |  |  | (68 | ) |  |  | 102 |
Related to UTP |  |  | (31 | ) |  |  | (34 | )
|  |  | 233 |  |  |  | 1,141 |
Deferred provision (benefit): |  |  |  |  |  |  |  |
Federal |  |  | 32 |  |  |  | (266 | )
State |  |  | 8 |  |  |  | (103 | )
Foreign |  |  | (9 | ) |  |  | 5 |
|  |  | 31 |  |  |  | (364 | )
Total tax provision |  | $ | 264 |  |  | $ | 777 |
Earnings occurring outside the U.S. are deemed to be indefinitely reinvested outside of the U.S. to support the Company’s foreign operations. As a result, if the Company accumulates earnings overseas, they will be used for investment in the Company’s businesses outside the U.S. The Company will use cash generated from U.S. operations and short- and long-term borrowings to meet the Company’s U.S. cash needs. The determination of unrecognized deferred tax liabilities for temporary differences in investments in foreign subsidiaries is not practicable. The Company has $0.7 million of state tax net operating loss (“NOL”) carryovers which will begin to expire in 2025. We also have a full valuation allowance on $0.6 million of foreign tax NOL carryovers that do not expire. Income before income taxes was earned in the following tax jurisdictions:
(in thousands) |  | Year Ended December 31, |
Income Before Income Taxes |  | 2024 |  |  | 2023 |
United States |  | $ | 1,382 |  |  | $ | 3,765 |
Spain |  |  | (259 | ) |  |  | 25 |
Canada |  |  | (32 | ) |  |  | 755 |
TOTAL |  | $ | 1,091 |  |  | $ | 4,545 |
The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:
Deferred income tax assets: |  | 2024 |  |  | 2023 |
(in thousands) |  |  |  |  |  |
Inventory |  | $ | 391 |  |  | $ | 412 |
Stock-based compensation |  |  | 39 |  |  |  | 55 |
Accounts receivable |  |  | 12 |  |  |  | 8 |
Sales returns |  |  | 78 |  |  |  | 49 |
Foreign currency translation gain in OCI |  |  | 726 |  |  |  | 512 |
Goodwill and other intangible assets amortization |  |  | 1 |  |  |  | - |
Net operating losses |  |  | 184 |  |  |  | 182 |
Accrued expenses |  |  | 41 |  |  |  | 170 |
Leases |  |  | 111 |  |  |  | 108 |
Total deferred income tax assets |  |  | 1,583 |  |  |  | 1,496 |
Less: valuation allowance |  |  | (156 | ) |  |  | (154 | )
Total deferred income tax assets, net of valuation allowance |  | $ | 1,427 |  |  | $ | 1,342 |
Property and equipment depreciation |  | $ | (214 | ) |  | $ | (471 | )
Total deferred income tax liabilities |  |  | (214 | ) |  |  | (471 | )
Net deferred tax asset (liability) |  | $ | 1,213 |  |  | $ | 871 |
We are required to reduce deferred tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. As of each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2024, management determined that there is sufficient positive evidence to conclude that it is more likely than not that deferred taxes of $1.2 million are realizable. However, we increase the valuation allowance by $0.02 million due to foreign tax NOL carryovers that do not expire. Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, the difference in tax rates for loss carryback periods, foreign income positions, expenses that are nondeductible for tax purposes, the change in our valuation allowance associated with our deferred tax assets, and differences in tax rates. Below is a reconciliation of our effective tax rate from the statutory rate:
|  | Year Ended December 31, |
|  | 2024 |  |  | 2023 |
Statutory rate – Federal U.S. income tax |  |  | 21.0 | % |  |  | 21.0 | %
State and local taxes |  |  | 5.3 | % |  |  | 5.3 | %
Permanent book/tax differences |  |  | 2.3 | % |  |  | 2.4 | %
Difference in tax rates in loss carryback periods |  |  | 0.0 | % |  |  | 0.0 | %
Change in valuation allowance |  |  | 0.2 | % |  |  | (6.8 | )%
Rate differential on UTP reversals |  |  | (2.8 | )% |  |  | (0.8 | )%
Income tax credits |  |  | 0.0 | % |  |  | (2.3 | )%
Other, net |  |  | (1.8 | )% |  |  | (1.7 | )%
Effective rate |  |  | 24.2 | % |  |  | 17.1 | %
We file a consolidated U.S. income tax return as well as state tax returns on a consolidated, combined, or stand-alone basis, depending on the jurisdiction. We are no longer subject to U.S. federal income tax examinations by tax authorities for years prior to the tax year ended December 2021. Depending on the jurisdiction, we are no longer subject to state examinations by tax authorities for years prior to the December 2020 and December 2021 tax years. We file tax returns in a limited number of foreign jurisdictions. A reconciliation of the beginning and ending amount of uncertain tax positions (“UTP”) is as follows:
|  | 2024 |  |  | 2023 |
UTP at beginning of the year |  | $ | 388 |  |  | $ | 450 |
Gross increase to tax positions in current period |  |  | (109 | ) |  |  | (27 | )
Interest expense |  |  | (31 | ) |  |  | (35 | )
UTP at end of year |  | $ | 248 |  |  | $ | 388 |

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