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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 9—Income Taxes

 

The following table presents the income (loss) before income taxes for domestic and foreign operations, and the components of the provision (benefit) for income taxes for the years ended December 31:

 

   2024   2023 
Domestic loss  $(34,058)  $(425)
Foreign subsidiaries income   636    709 
Income (loss) before income taxes  $(33,422)  $284 

 

 

 

   2024   2023 
Current income tax expense:          
Federal  $1   $2 
State   12    56 
Foreign   223    250 
Total Current   236    308 
           
Deferred income tax expense (benefit):          
Federal   —    — 
State   —    — 
Foreign   (10)   66 
Total Deferred   (10)   66 
Total provision for income taxes  $226   $374 

 

The Company’s effective tax rate differs from the federal statutory rate due to the following for the years ended December 31:

 

   2024   2023 
Statutory federal income tax rate   21.00%   21.00%
State income taxes, net of federal tax benefits   0.41%   23.20%
Stock compensation   -0.66%   84.92%
Foreign rate differential   -0.26%   58.55%
GILTI Inclusion   -0.37%   26.15%
Non-deductible expenses   -0.06%   1.02%
Valuation allowance   -20.74%   -83.07%
Effective tax rate   -0.68%   131.77%

 

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table presents the significant components of the Company’s deferred tax assets and liabilities at December 31:

 

   2024   2023 
Gross deferred tax assets:          
Net operating loss carryforward  $25,379   $18,887 
Section 174 capitalized costs   3,443    1,873 
Tax credits   102    100 
Accruals and reserves   2,928    1,927 
Property and equipment   —   21 
ASC 842 operating lease liability   —    12 
Alternative minimum tax credits   21    21 
Total gross deferred tax assets   31,873    22,841 
Less: valuation allowance   (30,271)   (22,774)
Total deferred tax assets net of valuation allowance   1,602    67 
Deferred tax liabilities:          
Accruals and reserves   (1,440)   — 
Property and equipment   (97)   — 
ASC 842 right of use asset   —    (12)
Net deferred tax assets  $65   $55 

 

A valuation allowance is provided for deferred tax assets where the recoverability of the assets is uncertain. The determination to provide a valuation allowance is dependent upon the assessment of whether it is more likely than not that sufficient future taxable income will be generated to utilize the deferred tax assets. Based on the weight of the available evidence, which includes the Company’s historical operating losses, lack of taxable income, and the accumulated deficit, the Company provided a full valuation allowance against the U.S. deferred tax assets resulting from the accruals and reserves along with the net operating loss and credits carried forward.

 

As of December 31, 2024 and 2023 the Company had net deferred income tax assets related primarily to net operating loss carry forwards, accruals and reserves and tax credit carryforward that are not currently being recognized of $30,271 and $22,841, respectively, which have been offset by a valuation allowance.

 

The Company has not provided U.S. Federal and State income taxes, nor foreign withholding taxes on approximately $12,003 of undistributed earnings for certain non-US subsidiaries, because such earnings are intended to be indefinitely reinvested. If these earnings were distributed to the U.S. in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, the Company would not be subject to U.S. income tax due to the transition tax of IRC Section 965 or via newly enacted Global Intangible Low-Taxed Income (“GILTI”) provision, enacted as part of the 2017 U.S. Tax Act. The Company would be subject to U.S. state tax and potential foreign withholding taxes on a repatriation of the foreign earnings. The amount of unrecognized deferred income tax liability related to these earnings is not material.

 

Estimate of cumulative foreign earnings is as follows as of December 31:

 

   2024   2023 
China  $6,694   $5,471 
India   5,309    5,102 
Total  $12,003   $10,573 

 

The Company had net operating loss carryovers as follows as of December 31:

 

   2024   2023 
Federal NOL  $118,497   $88,066 
Domestic Tax Authority  $112,247   $88,066 
State NOL  $7,875   $7,086 
State and Local Jurisdiction  $7,875   $7,086 

 

 

Net operating loss carryforwards are available to offset future federal and state taxable income. Federal and state net operating loss carryforwards begin to expire in 2037 and 2035, respectively. The net operating losses have annual Section 382 limitations.

 

The Company had research and development (“R&D”) credit carryforwards as follows as of December 31:

 

   2024   2023 
Federal R&D credits  $—   $— 
Internal Revenue Service (IRS)  $—   $— 
California R&D credits  $129   $127 
California Franchise Tax Board  $129   $127 

 

Federal and state laws impose restrictions on the utilization of net operating loss carryforwards and R&D credit carryforwards in the event of a change in ownership of the Company, which constitutes an ‘ownership change’ as defined by Internal Revenue Code Section 382 and 383. The Company experienced an ownership change in the past that materially impacts the availability of its net operating losses and tax credits. The amounts indicated in the above tables reflect the reduction of net operating losses and credit carryforwards as a result of previous ownership changes that the Company experienced. Should there be additional ownership changes in the future, the Company’s ability to utilize existing carryforwards could be substantially restricted.

 

The Company had excess interest expense carryforwards of $1,352 as of December 31, 2024. Federal laws impose restrictions on the utilization of Section 163(j) excess interest expense carryforwards in the event of a change in ownership of the Company, which constitutes an ‘ownership change’ as defined by Internal Revenue Code Section 382 and 383. The Company experienced an ownership change in July 2022 that materially impacts the availability of its excess interest expense. However, since the Section 163(j) excess interest expense carryover does not expire, there will be no limitation under Section 382 against the excess interest expense carryover in 2024. Should the Company utilize the excess interest expense in the future, the availability of its carryforwards would be substantially restricted.

 

The Company has long-term income taxes payable primarily related to transfer pricing agreements with its foreign subsidiaries.

 

Uncertain Tax Positions

 

The Company accounts for uncertainty in income taxes in accordance with ASC 740, Income Taxes. Under ASC 740, uncertain tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination by the tax authority, including resolutions of any related appeals or litigation processes, based on technical merit. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize, in the consolidated financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

 

The following table summarizes the activity related to unrecognized tax benefits as follows as of December 31:

 

   2024   2023 
Unrecognized benefit-beginning of period  $1,274   $1,273 
Gross increases-prior period tax positions   153    1 
Gross (decreases)-current period tax positions   46    — 
Unrecognized benefit-end of period  $1,473   $1,274 

 

As of December 31, 2024, $1 of the unrecognized tax benefits are accounted for as a reduction in the Company’s deferred tax assets. Due to the Company’s valuation allowance, only $1,472 of the $1,473 of unrecognized tax benefits would affect the Company’s effective tax rate, if recognized. The Company does not believe it is reasonably possible that its unrecognized tax benefits will significantly change in the next twelve months.

 

The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense. The Company reported a tax expense of $39 of interest and penalties in 2024 and the Company has accrued a liability of $259 for accrued interest and penalties related to unrecognized tax benefit as of December 31, 2024.

 

The Company’s material income tax jurisdictions are the United States (federal and California), China and India. As a result of net operating loss and credit carryforwards, the Company is subject to audit for tax years 2014 and forward for California purposes and for 2017 and forward for federal tax purposes. The China and India tax years are open under the statute of limitations from 2017 and forward.

 

 

Accounting for GILTI requires companies to adopt tax accounting policies related to:

 

Treating the book-tax differences as either period costs or to recognize GILTI related deferred tax assets/liabilities in accounting for the GILTI book-tax differences. The Company has elected to treat this difference as a period cost.

 

In the Company’s valuation allowance analysis, the Company will elect the Increment Cash Tax Savings Approach in determining its U.S. valuation allowance.