The entire amount of income tax expense of $3.0 million, $3.1 million, and $2.9 million during fiscal 2024, 2023, and 2022, respectively, was allocated to (loss) income from continuing operations.

Income tax expense consists of:


(dollars in thousands)	2024			2023			2022
current
federal	$	—			—			—
state		—			1			2
foreign		2,584			3,053			2,156
uncertain income tax positions		78			78			37
		2,662			3,132			2,195
deferred
federal		1,342			(1,591	)		1,121
state		63			(66	)		47
undistributed earnings – foreign subsidiaries		627			628			76
U.S. federal & state carryforwards and credits		(4,734	)		(5,162	)		(971	)
uncertain income tax positions		—			—			(380	)
foreign		(240	)		(629	)		615
valuation allowance		3,329			6,818			183
		387			(2	)		691
	$	3,049			3,130			2,886

Loss before income taxes related to our foreign and U.S. operations consists of:


(dollars in thousands)	2024			2023			2022
Foreign
China	$	9,091			7,062			6,998
Canada		902			1,516			1,302
Haiti		(2,127	)		(3,483	)		(980	)
Vietnam		(22	)		—			—
Total Foreign		7,844			5,095			7,320
United States		(18,614	)		(33,485	)		(7,645	)
	$	(10,770	)		(28,390	)		(325	)

The following schedule summarizes the principal differences between the income tax expense at the federal income tax rate and the effective income tax rate reflected in the consolidated financial statements:


	2024			2023			2022
U.S. federal income tax rate		21.0	%		21.0	%		21.0	%
valuation allowance		(30.9	)		(24.0	)		(56.3	)
global intangible low taxed income tax (GILTI) (1)		—			—			(540.9	)
foreign tax rate differential		(4.7	)		(4.0	)		(206.2	)
income tax effects of Chinese foreign exchange gains and losses		(3.6	)		(0.9	)		(20.6	)
withholding taxes associated with foreign tax jurisdictions		(6.5	)		(2.4	)		(172.8	)
uncertain income tax positions		(0.7	)		(0.3	)		105.4
U.S. state income taxes		0.8			0.6			21.5
stock-based compensation		(1.8	)		(0.3	)		(3.3	)
other (2)		(1.9	)		(0.7	)		(35.8	)
consolidated effective income tax rate (3) (4) (5)		(28.3	)%		(11.0	)%		(888.0	)%

(1)

See the below section titled "GILTI" for further details for the GILTI tax incurred during fiscal 2022.

(2)

“Other” for all periods presented represents miscellaneous adjustments that pertain to U.S. permanent differences such as meals and entertainment and income tax provision to return adjustments.

(3)

Our negative consolidated effective income tax rates during fiscal 2024, 2023, and 2022, were caused by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stems from our operations located in China and Canada, which have higher income tax rates than the U.S. In addition, we applied a full valuation allowance against our U.S. deferred income tax assets during fiscal 2024, 2023, and 2022, respectively. Consequently, an income tax benefit was not recognized for the pre-tax losses associated with our U.S. operations totaling $(18.6) million, $(33.5) million, and $(7.6) million that were incurred during fiscal 2024, 2023, and 2022, respectively.

(4)

During fiscal 2024, we incurred a significantly lower consolidated pre-tax loss of $(10.8) million, compared with a significantly higher pre-tax loss of $(28.4) million incurred during fiscal 2023. As a result, the principal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements were more pronounced during fiscal 2024 compared with fiscal 2023.

(5)

During fiscal 2023, we incurred a significantly higher consolidated pre-tax loss totaling $(28.4) million, compared with a much lower consolidated pre-tax loss totaling $(325,000) during fiscal 2022. As a result, the principal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements were more pronounced for fiscal 2022, compared with fiscal 2023.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities consist of the following:


(dollars in thousands)	2024			2023
deferred tax assets:
accounts receivable	$	195			297
inventories		1,972			3,277
compensation		2,152			2,676
liabilities and other		8			5
intangible assets and goodwill		349			395
property, plant, and equipment (1)		171			179
operating lease liability		693			781
foreign income tax credits - U.S.		783			783
loss carryforwards – U.S.		18,344			13,564
valuation allowance - U.S.		(22,004	)		(18,675	)
total deferred tax assets		2,663			3,282


deferred tax liabilities:
undistributed earnings on foreign subsidiaries		(4,840	)	(4,213	)
property, plant and equipment (2)		(2,694	)	(3,450	)
right of use assets		(851	)	(964	)
other		(139	)	(129	)
total deferred tax liabilities		(8,524	)	(8,756	)
Net deferred liabilities	$	(5,861	)	(5,474	)

(1)

Pertains to the company’s operations located in China.

(2)

Pertains to the company’s operations located in the U.S. and Canada.

As of April 28, 2024, our U.S. federal net operating loss carryforwards totaled $69.6 million, with related future income tax benefits of $14.6 million. In accordance with the 2017 Tax Cuts and Jobs Act (“TCJA”), U.S. federal net operating loss carryforwards generated in fiscal 2019 and after do not expire. As of April 28, 2024, all our unused U.S. federal net operating loss carryforwards were generated during fiscal 2019 and after, and therefore, do not expire in accordance with the TCJA. As of April 28, 2024, our U.S. state net operating loss carryforwards totaled $31.7 million, with related future income tax benefits of $1.3 million, have expiration dates ranging from fiscal years 2025 through 2045. Our U.S. foreign income tax credits of $783,000 have expiration dates ranging from fiscal years 2026 through 2028, which represent 10 years from when the associated earnings and profits from our foreign subsidiaries were repatriated to the U.S.

We do not expect to incur GILTI tax for the 2024 tax year, as we expect to meet the GILTI High-Tax exception regarding our operations located in China and Canada, and we incurred taxable losses associated with our operations located in Haiti. We did not incur GILTI tax for the 2023 tax year, as we met the GILTI High-Tax exception.

We did not meet the GILTI High-Tax exception for the 2021 tax year regarding our foreign operations located in China. This was due primarily to significant income tax deductible foreign exchange losses that significantly lowered income tax expense associated with the current year’s earnings associated with our operations located in China. As a result, the current effective income tax rate was lower than the required 18.9% current effective income tax rate to meet the GILTI High-Tax exception. Consequently, we incurred a non-cash income tax charge of $1.8 million, which charge was fully offset by a $1.8 million non-cash income tax benefit due to a corresponding reversal of our full valuation allowance associated with our U.S. net deferred income tax assets.

We did not meet the GILTI High-Tax exception for the 2022 tax year regarding our operations located in Canada and Haiti. With regards to Canada, we placed several significant capital projects into service during fiscal 2022, and therefore, were eligible for a significant amount of deductible accelerated depreciation. As a result, our current year's income tax expense was much lower than prior fiscal years, and therefore, our current effective income tax rate was lower than the required 18.9% current effective income tax rate to meet the GILTI High-Tax exception. For our operations located in Haiti, taxable income or losses are not subject to income tax, as we are located in an economic zone that permits a 0% income tax rate for the first fifteen years of operations, for which we have eight years remaining. Since our operations located in Haiti are not subject to income tax, our current effective tax rate was 0%, which is lower than the required 18.9% current effective income tax rate to meet the GILTI High-Tax exception. Although our operations located in Canada and Haiti did not meet the GILTI High-Tax exception, we incurred a nominal amount of GILTI tax for the 2022 tax year, as the losses subject to GILTI tax from our Haitian operations mostly offset the income subject to GILTI tax from our Canadian operation.

We evaluate the realizability of our deferred income taxes to determine if a valuation allowance is required. We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard, with significant weight being given to evidence that can be objectively verified. Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law.

As of April 28, 2024, we evaluated the realizability of our U.S. net deferred income tax assets to determine if a full valuation allowance was still required. Based on our assessment, we determined we still have a recent history of significant cumulative U.S. pre-tax losses, in that we experienced U.S. pre-tax losses during each of the last three fiscal years. In addition, we are currently expecting U.S. pre-tax losses to continue into fiscal 2025. As a result of the significant weight of this negative evidence, we believe it is more-likely-than-not that our U.S net deferred income tax assets will not be fully realizable, and therefore we provided for a full valuation allowance against our U.S. net deferred income tax assets.

A summary of the change in the valuation allowances against our U.S. net deferred income tax assets follows:


(dollars in thousands)	2024		2023			2022
beginning balance	$	18,675		11,857			11,674
change in valuation allowance associated with current year earnings		3,318		7,252			1,640
change in estimate during current year (1)		11		(434	)		(1,457	)
ending balance	$	22,004		18,675			11,857

(1)

Amounts represent changes in our U.S.net deferred income tax asset balances during the current year that pertain to (i) income tax provision to return adjustments; (ii) changes in estimates of our U.S. effective income tax rate that pertain to U.S. state income tax rates and apportionment percentages, (iii) recognition of an uncertain income tax position due to expiration of statute of limitations; (iv) expiration of certain U.S. state loss carryforwards; and (v) other immaterial items.

We assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S. parent company and whether we are required to record a deferred income tax liability for those undistributed earnings from our foreign subsidiaries that will not be reinvested indefinitely. As of April 28, 2024, we assessed the liquidity requirements of our U.S. parent company and determined that our undistributed earnings and profits from our foreign subsidiaries would not be reinvested indefinitely and would be eventually distributed to our U.S. parent company. The conclusion reached from this assessment has been consistent with prior years.

As a result of the TCJA, a U.S. corporation is allowed a 100% dividend received deduction for earnings and profits received from a 10% owned foreign corporation. Therefore, a deferred income tax liability will be required only for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the U.S. parent company. As a result, we recorded a deferred income tax liability of $4.8 million and $4.2 million as of April 28, 2024, and April 30, 2023, respectively.

An unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the end of the reporting period, or is effectively settled through examination, negotiation, or litigation, or if the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. If it is determined that any of the above conditions occur regarding our uncertain income tax positions, an adjustment to our unrecognized income tax benefit will be recorded at that time.

The following table sets forth the change in the company’s unrecognized income tax benefit:


(dollars in thousands)	2024			2023			2022
beginning balance	$	1,179			1,101			1,444
increases from prior period tax positions		197			175			114
decreases from prior period tax positions		(118	)		(97	)		(77	)
lapse of applicable statute of limitations		—			—			(380	)
ending balance	$	1,258			1,179			1,101

As of April 28, 2024, and April 30, 2023, we had $1.3 million and $1.2 million of total gross unrecognized tax benefits, of which the entire amount was classified as income taxes payable - long-term in the accompanying Consolidated Balance Sheets. These unrecognized income tax benefits would favorably affect income tax expense in future periods by $1.3 million and $1.2 million as of April 28, 2024, and April 30, 2023, respectively.

We elected to classify interest and penalties as part of income tax expense. As of April 28, 2024, and April 30, 2023, the gross amount of interest and penalties due to unrecognized tax benefits was $281,000 and $239,000, respectively.

Our gross unrecognized income tax benefit of $1.3 million as of April 28, 2024, relates to income tax positions for which significant change is currently not expected within the next year. This amount primarily relates to double taxation under applicable income tax treaties with foreign tax jurisdictions. United States federal and state income tax returns filed by us remain subject to examination for income tax years 2019 and subsequent. Canadian federal income tax returns filed by us remain subject to examination for income tax years 2020 and subsequent. Canadian provincial (Quebec) income tax returns filed by us remain subject to examination for income tax years 2020 and subsequent. Income tax returns associated with our operations located in China are subject to examination for income tax year 2019 and subsequent.

The following table sets forth income taxes paid (refunded) by jurisdiction:


(dollars in thousands)	2024		2023		2022
United States federal - Transition Tax	$	499	$	265	$	266
China - Income Taxes		2,317		1,831		2,036
China - Withholding Taxes Associated with Earnings and Profits Distribution to U.S. Parent		—		—		487
Canada - Income Taxes		468		228		311
	$	3,284	$	2,324	$	3,100