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Note G - Income Taxes | 12 Months Ended
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Jun. 30, 2024
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | G. Income Taxes During fiscal 2024, we recorded U.S.-based domestic tax benefit of $2.2 million and negligible foreign tax benefit. During fiscal 2023, we recorded U.S.-based domestic tax expense of $0.8 million and foreign tax expense of $0.2 million. The following is a geographical breakdown of (loss) income before income taxes (in thousands):
|  | 2024 |  |  | 2023 |
United States |  | $ | (9,046 | ) |  | $ | 2,588 |
Foreign |  |  | (418 | ) |  |  | 967 |
Total (loss) income before income taxes |  | $ | (9,464 | ) |  | $ | 3,555 |
The (benefit) provision for income taxes for the years ended June 30 consisted of the following (in thousands):
|  | 2024 |  |  | 2023 |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | (55 | ) |  | $ | 843 |
State |  |  | 41 |  |  |  | 211 |
Foreign |  |  | 66 |  |  |  | 221 |
|  |  | 52 |  |  |  | 1,275 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | (2,007 | ) |  |  | (246 | )
State |  |  | (223 | ) |  |  | 4 |
Foreign |  |  | (69 | ) |  |  | — |
|  |  | (2,299 | ) |  |  | (242 | )
Total (benefit) provision for income taxes |  | $ | (2,247 | ) |  | $ | 1,033 |
Net deferred tax assets and deferred tax liabilities as of June 30 were as follows (in thousands):
|  | 2024 |  |  | 2023 |
Deferred tax assets: |  |  |  |  |  |  |  |
Inventory capitalization |  | $ | 279 |  |  | $ | 220 |
Inventory reserves |  |  | 148 |  |  |  | 164 |
Lease liability |  |  | 8,497 |  |  |  | 2,018 |
Net operating loss carry forward |  |  | 1,505 |  |  |  | 433 |
Accrued compensation |  |  | 140 |  |  |  | 166 |
Capitalized research and experimentation |  |  | 694 |  |  |  | 412 |
Accrued contingent fee |  |  | 207 |  |  |  | 219 |
Stock-based compensation |  |  | 129 |  |  |  | 81 |
Forward contracts |  |  | — |  |  |  | 56 |
Tax credit carry forward |  |  | 682 |  |  |  | 229 |
Pension liability |  |  | 67 |  |  |  | 103 |
Other, net |  |  | 215 |  |  |  | 88 |
Total gross deferred tax assets |  |  | 12,563 |  |  |  | 4,189 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Withholding taxes |  |  | (134 | ) |  |  | (401 | )
Fixed assets |  |  | (1,485 | ) |  |  | (1,451 | )
Forward contracts |  |  | (54 | ) |  |  | — |
Lease asset |  |  | (7,694 | ) |  |  | (1,951 | )
Other, net |  |  | (26 | ) |  |  | (31 | )
Deferred tax liabilities |  |  | (9,393 | ) |  |  | (3,834 | )
Net deferred tax assets |  | $ | 3,170 |  |  | $ | 355 |
As of June 30, 2024, the Company had U.S. federal net operating loss carryforwards of $4.6 million which may be carried forward indefinitely. The Company has state net operating loss carryforwards of $6.6 million, which, if unutilized, will begin to expire beginning in fiscal year 2031. The Company also has foreign net operating loss carryforwards of $0.3 million, which, if unutilized, will begin to expire in fiscal year 2031. The Company has federal and state tax credits of $0.8 million, which, if unutilized, will begin to expire in fiscal year 2041. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the annual use of the net operating loss carry forwards and research and development tax credits could be limited by any greater than 50% ownership change during any three-year testing period. We did not have any ownership changes that met this criterion during the fiscal years ended June 30, 2024 and June 30, 2023. We are subject to taxation in the U.S., Switzerland and various state jurisdictions. Our tax years for the fiscal year ended June 30, 2019 and forward are subject to examination by the U.S. tax authorities. Our tax years for the fiscal years ended June 30, 2018 and forward are subject to examination by the state tax authorities. Our tax years for the fiscal year ended June 30, 2023 and forward are subject to assessment by the Swiss tax authorities. NAIE’s effective tax rate for the fiscal year ended June 30, 2024 for Swiss federal, cantonal and communal taxes is approximately 1%. This rate is lower than our historical effective rate for NAIE because NAIE recognized a pre-tax loss and the calculated benefit for the year was mostly offset by a capital tax that is calculated based on net equity regardless of whether the company recognized a profit or not. As part of the Tax Cuts and Jobs Act of 2017 (the Tax Act), we were required to recognize a one-time deemed repatriation transition tax during the fiscal year ended June 30, 2018 based on our total post-1986 earnings and profits (E&P) from our Swiss subsidiary, NAIE. This accumulated E&P amount has historically been considered permanently reinvested thereby allowing us to defer recognizing any U.S. income tax on the amount. We no longer consider undistributed foreign earnings from NAIE as of December 31, 2017 as indefinitely reinvested. We consider earnings accumulated subsequent to December 31, 2017 as indefinitely reinvested. For tax years commencing on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017, also eliminates the ability to immediately deduct research and development costs. Instead, taxpayers are mandated to capitalize these expenses and amortize them over five years for research conducted within the United States and 15 years for research conducted abroad, as stipulated in IRC Section 174. There is ongoing consideration in Congress for legislation that may revoke or postpone this capitalization and amortization requirement; however, there is no guarantee that this provision will undergo repeal or any other form of modification. Should this requirement remain unchanged, it will result in a reduction of our tax deduction for research and development expenses in the forthcoming years. During fiscal 2024, NAIE declared a dividend of $5.4 million to NAI, which was paid in the first quarter of fiscal 2025. During fiscal 2023, NAIE declared and paid dividends to NAI in the amount of $14.7 million. These amounts are part of the undistributed earnings that we recorded a one-time deemed repatriation transition tax on in fiscal 2018 and therefore we did not recognize any additional tax on these dividends. However, as part of these dividends, we were required to pay a 5% Swiss withholding tax totaling $0.3 million in fiscal 2024 and $0.7 million in fiscal 2023 which were also accrued for as part of the implementation of the Tax Act in fiscal 2018. A reconciliation of our income tax (benefit) provision computed by applying the statutory federal income tax rate of 21% for fiscal 2024 and for fiscal 2023 to net (loss) income before income taxes for the year ended June 30 is as follows (dollars in thousands):
|  | 2024 |  |  | 2023 |
Income taxes computed at statutory federal income tax rate |  | $ | (2,033 | ) |  | $ | 749 |
State income taxes, net of federal income tax expense |  |  | (215 | ) |  |  | 90 |
Permanent differences |  |  | (20 | ) |  |  | 8 |
Foreign tax rate differential |  |  | 131 |  |  |  | 18 |
Tax credits |  |  | (170 | ) |  |  | (347 | )
Stock based compensation |  |  | 93 |  |  |  | 61 |
Global intangible low-taxed income (GILTI) |  |  | — |  |  |  | 355 |
Return to provision - differences |  |  | (33 | ) |  |  | 99 |
Income tax (benefit) provision as reported |  | $ | (2,247 | ) |  | $ | 1,033 |
Effective tax rate |  |  | (23.7 | )% |  |  | 29.1 | %
We expect our U.S. federal statutory rate to be 21% for fiscal years going forward.

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