XML 28 R16.htm IDEA: XBRL DOCUMENT v3.25.2
Note G - Income Taxes
 12 Months Ended
Jun. 30, 2025
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

G. Income Taxes

 

During fiscal 2025, we recorded U.S.-based domestic tax expense of $2.7 million and foreign tax expense of $0.1 million. During fiscal 2024, we recorded U.S.-based domestic tax benefit of $2.2 million and negligible foreign tax benefit.

 

During fiscal 2025, we recorded a valuation allowance against net domestic deferred income tax assets of $4.8 million, representing the amount of our deferred income tax assets in excess of our domestic deferred income tax liabilities. We recorded the valuation allowance because management was unable to conclude, in light of the cumulative loss we have realized related to our US-based operations in recent years, that realization of the net deferred income tax asset was more likely than not. The valuation allowance recorded during fiscal 2025 primarily related to fiscal 2025 and prior net operating loss carry forwards and changes in other deferred tax items recognized during fiscal 2025. As a result of the recognition of these valuation adjustments, we have a $4.8 million net deferred tax asset offset by a valuation allowance of $4.8 million resulting in a net deferred tax asset of $0 as of June 30, 2025. This valuation allowance did not have any effect on the tax expense and related liability recorded for operating income recognized by NAIE during the year ended June 30, 2025.

 

The following is a geographical breakdown of loss before income taxes (in thousands):

 

  

2025

  

2024

 
         

United States

 $(11,520) $(9,046)

Foreign

  780   (418)

Total loss before income taxes

 $(10,740) $(9,464)

 

The provision (benefit) for income taxes for the years ended June 30 consisted of the following (in thousands):

 

  

2025

  

2024

 

Current:

        

Federal

 $(858) $(55)

State

  (17)  41 

Foreign

  161   66 
   (714)  52 

Deferred:

        

Federal

  (1,198)  (2,007)

State

  (68)  (223)

Foreign

  —   (69)

Valuation allowance

  4,815   — 
   3,549   (2,299)

Total provision (benefit) for income taxes

 $2,835  $(2,247)

 

Net deferred tax assets and deferred tax liabilities as of June 30 were as follows (in thousands):

 

  

2025

  

2024

 

Deferred tax assets:

        

Inventory capitalization

 $295  $279 

Inventory reserves

  176   148 

Lease liability

  8,678   8,497 

Net operating loss carry forward

  2,151   1,505 

Accrued compensation

  186   140 

Capitalized research and experimentation

  944   694 

Accrued contingent fee

  72   207 

Stock-based compensation

  95   129 

Forward contracts

  378   — 

Tax credit carry forward

  722   682 

Pension liability

  52   67 

Accrued settlement of legal proceeding

  302   — 

Other, net

  296   215 

Total gross deferred tax assets

  14,347   12,563 
         
         

Deferred tax liabilities:

        

Withholding taxes

  (134)  (134)

Fixed assets

  (1,577)  (1,485)

Forward contracts

  —   (54)

Lease assets

  (7,464)  (7,694)

Employee retention tax credit refund

  (358)  — 

Other, net

  —   (26)

Deferred tax liabilities

  (9,533)  (9,393)

Valuation allowance

  (4,814)  — 

Net deferred tax assets

 $—  $3,170 

 

As of June 30, 2025, the Company had U.S. federal net operating loss carryforwards of $8.0 million which may be carried forward indefinitely. The Company has state net operating loss carryforwards of $6.8 million, which, if unutilized, will begin to expire beginning in fiscal year 2032. 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, 2025 and June 30, 2024.

 

We are subject to taxation in the U.S., Switzerland and various state jurisdictions. Our tax years for the fiscal year ended June 30, 2020 and forward are subject to examination by the U.S. tax authorities. Our tax years for the fiscal years ended June 30, 2019 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, 2025 for Swiss federal, cantonal and communal taxes is approximately 21%.

 

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 eliminated the ability to immediately deduct research and development costs. Instead, taxpayers were 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. Although the requirements of the Tax Cuts and Jobs Act of 2017 are applicable for our fiscal year ended on June 30, 2025, the One Big Beautiful Bill Act was voted into law by congress on July 4, 2025 and restores the immediate expensing of domestic research and development expenses while making permanent the capitalization and amortization rules of research and development conducted abroad. The One Big Beautiful Bill Act is effective beginning in our fiscal year 2026. No dividends to NAI were declared by NAIE in fiscal 2025. During fiscal 2024, NAIE declared a dividend to NAI of $5.4 million, which was paid in the first quarter of fiscal 2025. These amounts are part of the undistributed earnings that we recorded a one-time deemed repatriation transition tax 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 which was also accrued for as part of the implementation of the Tax Act in fiscal 2018.

 

A reconciliation of our income tax provision (benefit) computed by applying the statutory federal income tax rate of 21% for fiscal 2025 and for fiscal 2024 to net loss before income taxes for the year ended June 30 is as follows (dollars in thousands):

 

  

2025

  

2024

 

Income taxes computed at statutory federal income tax rate

 $(2,256) $(2,033)

State income taxes, net of federal income tax expense

  (177)  (215)

Permanent differences

  10   (20)

Foreign tax rate differential

  (2)  131 

Tax credits

  (61)  (170)

Stock based compensation

  123   93 

Global intangible low-taxed income (GILTI)

  233   — 

Return to provision - differences

  150   (33)

Change in valuation allowance, net

  4,815   — 

Income tax provision (benefit) as reported

 $2,835  $(2,247)

Effective tax rate

  (26.4)%  (23.7)%

 

We expect our U.S. federal statutory rate to be 21% for fiscal years going forward.