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Note 14 - Income Tax
 12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

14.

Income Tax

 

Income tax expense for the years ended December 31, 2023 and 2022, consisted of: 

 

  

Year Ended December 31,

 

(in thousands)

 

2023

  

2022

 

Current income tax expense:

        

Federal and state

 $570  $641 

Foreign

  61   194 
   631   835 

Deferred income tax expense (benefit):

        

Federal and state

  132   (468)

Foreign

  96   (30)
   228   (498)

Total income tax expense

 $859  $337 

 

The effective tax rate for the year ended December 31, 2023 was (33.5)% as compared with (3.7)% for the same period in 2022. The difference between the Company’s effective tax rate year over year was primarily attributable to changes in the mix of pre-tax income and losses at individual subsidiaries, and the impact of changes in uncertain tax positions.

 

Income tax expense for the years ended December 31, 2023 and 2022, differed from the amount computed by applying the U.S. federal income tax rate of 21% to pre-tax loss as a result of the following:  

 

  

Year Ended December 31,

 

(in thousands)

 

2023

  

2022

 

Income tax benefit computed at federal statutory tax rate

 $(537) $(1,927)

Increase (decrease) in income taxes resulting from:

        

Permanent differences, net

  (89)  375 

Non-deductible executive compensation

  324   346 

Global Intangible Low-Taxed Income (GILTI)

  537   552 

State income taxes, net of federal income tax benefit

  (19)  (295)

Stock-based compensation

  (329)  69 

Tax credits

  (51)  492 

Net operating loss true-ups and expirations

  1,140   431 

Change in reserve for uncertain tax position

  239   688 

Impact of change to prior year tax accruals

  (171)  (232)

Change in valuation allowance allocated to income tax

  631   (102)

Other

  (816)  (60)

Total income tax expense

 $859  $337 

 

Income tax expense is based on the following pre-tax (loss) income from operations:

 

  

Year Ended December 31,

 

(in thousands)

 

2023

  

2022

 

Domestic

 $(2,951) $(9,099)

Foreign

  395   (80)

Total

 $(2,556) $(9,179)

 

The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities at December 31, 2023 and 2022, are as follows:

 

  

Year Ended December 31,

 

(in thousands)

 

2023

  

2022

 

Deferred income tax assets:

        

Inventory

 $1,489  $1,696 

Operating loss and credit carryforwards

  11,550   14,883 

Research and development

  3,908   2,000 

Employee retention credit

  1,435   - 

Lease liabilities

  1,317   1,538 

Accrued expenses

  818   621 

Stock compensation

  670   675 

Deferred interest expense

  386   881 

Other assets

  934   726 

Total gross deferred assets

  22,507   23,020 

Less: valuation allowance

  (15,222)  (14,506)

Deferred tax assets

 $7,285  $8,514 
         

Deferred income tax liabilities:

        

Indefinite-lived intangible assets

 $1,964  $1,914 

Definite-lived intangible assets

  3,733   4,875 

Lease right-of-use assets

  959   1,148 

Employee benefit plans

  569   579 

Other liabilities

  400   255 

Total deferred tax liabilities

  7,625   8,771 

Deferred income tax liabilities, net

 $(340) $(257)

 

Deferred income tax assets and liabilities by classification on the consolidated balance sheets were as follows:

 

  

Year Ended December 31,

 

(in thousands)

 

2023

  

2022

 

Deferred tax assets (included in other long-term assets)

 $436  $333 

Deferred income tax liabilities

  (776)  (590)

Deferred income tax liability, net

 $(340) $(257)

 

At December 31, 2023, the Company had state net operating loss carryforwards of $6.3 million, which expire between 2024 and 2043. The Company had net operating loss carryforwards of $7.8 million in certain foreign jurisdictions which may be carried forward indefinitely, partially offset by valuation allowances. The Company had $7.8 million of research and development tax credit carryforwards which begin to expire in 2024, and are partially offset by a reserve of $0.8 million for uncertain tax positions. The Company had a total of $2.7 million of state investment tax credit carryforwards, research and development tax credit carryforwards, and enterprise zone credit carryforwards, which begin to expire in 2024. In addition, the Company had a total of $0.4 million international R&D credits which begin to expire in 2037. The Internal Revenue Code (“IRC”) limits the amounts of net operating loss carryforwards or credits that a company may use in any one year in the event of a change in ownership under IRC Sections 382 or 383. As a result of various acquisitions in prior years, certain losses and credit carryforwards are subject to these limitations.

 

As of December 31, 2023 and 2022, the Company maintained a total valuation allowance of $15.2 million and $14.5 million, respectively, which relates to foreign, federal, and state deferred tax assets in both years. The valuation allowance is based on estimates of taxable income in each of the jurisdictions in which the Company operates and the period over which deferred tax assets will be recoverable. The net change in the total valuation allowance for the years ended December 31, 2023 and 2022, was an increase of $0.7 million and a decrease of $0.2 million, respectively. During the year ended December 31, 2023, the Company increased the valuation allowance related to the estimate of realizability of German deferred tax assets and deferred tax assets related to the Employee Retention Credit, offset by the utilization and expiration of certain U.S. federal and state net operating losses and the expiration of certain U.S. credits.

 

As of December 31, 2023 and 2022, cash and cash equivalents held by the Company’s foreign subsidiaries were $2.1 million and $2.6 million, respectively. As of December 31, 2023, the Company has determined the potential income tax and withholding liability related to available cash balances at foreign subsidiaries to be immaterial.

 

A summary of activity of unrecognized tax benefits is as follows:

 

  

(in thousands)

 

Balance at December 31, 2021

 $1,332 

Additions based on tax positions of prior years

  534 

Decreases based on tax positions of prior years

  (34)

Additions based on tax positions of current year

  237 

Other decreases, net

  (86)

Balance at December 31, 2022

  1,983 

Additions based on tax positions of prior years

  13 

Decreases based on tax positions of prior years

  57 

Additions based on tax positions of current year

  245 

Other decreases, net

  (76)

Balance at December 31, 2023

 $2,222 

 

We expect the amount of unrecognized tax benefits to change within the next twelve months, including the release of reserves of approximately $0.4 million. Substantially all of the liability for uncertain tax benefits related to various federal, state and foreign income tax matters would benefit the Company's effective tax rate, if recognized. The Company classifies interest and penalties related to unrecognized tax benefits as a component of income tax expense, which has not been significant during the years ended December 31, 2023 and 2022, respectively.

 

With a few exceptions, the Company is no longer subject to income tax examinations by tax authorities in foreign jurisdictions for the years before 2019. In the U.S., the Company’s net operating loss and tax credit carryforward amounts remain subject to federal and state examination for tax years starting in 2004 as a result of tax losses incurred in prior years. There are currently no pending federal or state tax examinations.