R F INDUSTRIES LTD Income Taxes Disclosure

Note 7 – Income tax provision

 

The provision for income taxes for the fiscal years ended October 31, 2025 and 2024 consists of the following (in thousands):

 

		2025				2024
Current:
Federal		$	619			$	-
State			82				93
			701				93
Deferred:
Federal			21				1,942
State			16				761
			37				2,703
		$	738			$	2,796

 

Income tax at the federal statutory rate is reconciled to our actual net provision for income taxes as follows (in thousands, except percentages):

 

		2025								2024
						% of Pretax								% of Pretax
		Amount				Income				Amount				Loss
U.S. federal statutory tax rate		$	171				21.1	%		$	(799	)			21.0	%
State and local taxes, net of federal tax benefit			(105	)			-12.9	%			(170	)			4.5	%
Permanent differences			16				2.0	%			14				-0.4	%
Stock options			12				1.5	%			45				-1.2	%
Foreign derived intangible income deduction			(27	)			-3.3	%			-				0.0	%
IRC 162(m) disallowance			45				5.5	%			-				0.0	%
R&D credits			(153	)			-18.8	%			(102	)			2.7	%
Uncertain tax position reserves			5				0.6	%			3				-0.1	%
Return-to-provision adjustments			19				2.3	%			(34	)			0.9	%
Change in the valuation allowance on deferred tax assets			755				93.0	%			3,839				-100.9	%
Income tax expense		$	738				91.0	%		$	2,796				-73.5	%

 

The significant components of deferred income taxes were as follows (in thousands):

 

		2025				2024
Deferred Tax Assets:
Reserves		$	1,001			$	561
Compensation accruals			294				264
Stock-based compensation awards			278				328
Uniform capitalization			404				277
Lease liability			4,761				5,221
Others			88				55
Capitalized Section 174 Costs			1,543				1,209
Research and development tax credits			219				282
163(j) interest carryforward			181				347
Gross deferred tax assets			8,769				8,544
Valuation allowance			(4,716	)			(3,962	)
Total deferred tax assets			4,053				4,582
Deferred Tax Liabilities:
Amortization / intangible assets			(158	)			(172	)
ROU assets			(3,514	)			(3,880	)
Depreciation / equipment and furnishings			(628	)			(740	)
Gross deferred tax liabilities			(4,300	)			(4,792	)
Net deferred tax asset/(liabilities)		$	(247	)		$	(210	)

 

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company assesses all positive and negative evidence in determining if, based on the weight of such evidence, a valuation allowance is required to be maintained against the deferred tax assets as of October 31, 2025. The Company has evaluated future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In making such judgements, significant weight is given to evidence that can be objectively verified. After analyzing all available evidence, the Company continues to maintain that it is not more likely than not that all of its deferred tax assets will be realized, and therefore, has maintained a partial valuation allowance of $4.7 million and $4.0 million against its federal and state deferred tax assets as of October 31, 2025 and 2024, respectively.

 

At October 31, 2025, the Company has gross state net operating loss (NOL) carryforwards of $1.2 million. The state NOL carryforwards of $0.3 million will begin to expire in 2044 unless previously utilized and the remainder will carry forward indefinitely. At October 31, 2025, the Company also has IRC 163(j) interest carryforwards of $0.8 million, which will carry forward indefinitely. At October 31, 2025, the Company also has state research and development credit carryforwards of $0.3 million, respectively. The state credit carryforwards of $0.3 million will begin to expire in 2029 unless previously utilized and the remainder will carry forward indefinitely.

 

The provision for income taxes was $0.7 million or 91% and $2.8 million or (73.5%) of income before income taxes for fiscal 2025 and 2024, respectively. The fiscal 2025 effective tax rate differed from the statutory federal rate of 21% primarily as a result of the tax benefit from research and development tax credits, the change in valuation allowance and state taxes.

 

The Company recognizes the benefit of tax positions taken or expected to be taken in its tax returns in the consolidated financial statements when it is more likely than not that the position will be sustained upon examination by authorities. Recognized tax positions are measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement.         

 

A reconciliation of the beginning and ending balance to total uncertain tax positions in fiscal years ended October 31, 2025 and 2024 are as follows:

 

		2025				2024
Balance, at beginning of year		$	186			$	178
Increase for tax positions related to the current year			57				47
Increase (decrease) for tax positions related to prior years			(10	)			(10	)
Statute of limitations expirations			(16	)			(29	)
Balance, at end of year		$	217			$	186

 

We had gross unrecognized tax benefits of $217,000 and $186,000 attributable to U.S. federal and state research tax credits as of October 31, 2025 and 2024 respectively. During fiscal 2025, the increase in our gross unrecognized tax benefit was primarily related to increased federal and state research tax credits being generated. The uncertain tax benefit of $69,000 is recorded as a reduction to deferred tax assets and the remainder is recorded in income taxes payable in our consolidated balance sheet and if recognized in the future would impact our effective tax rate. We recognize interest and penalties related to uncertain tax positions in income tax expense. We recognized expense of approximately $32,000 and $28,000 during the years ended October 31, 2025 and 2024, respectively. We believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, it is possible that certain changes may occur within the next twelve months, but we do not anticipate that our accrual for uncertain tax positions will change by a material amount over the next twelve-month period.

 

We are subject to taxation in the United States and state jurisdictions. Our tax years for October 31, 2022 and forward are subject to examination by the United States and October 31, 2021 and forward with state tax authorities.