INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2025

Schedule of Income (Loss) Before Provision for (Benefit From) Income Taxes

The geographical breakdown of the Company’s income (loss) from continuing operations before income tax expense (benefit) was as follows (in thousands):


	Year Ended December 31,
	2025			2024
Domestic	$	988		$	1,274
International		(3,844	)		1,710
Income (loss) before income tax expense	$	(2,856	)	$	2,984

Summary of Income Tax Expense (Benefit)

Income tax expense (benefit) consists of (in thousands):


	Year Ended December 31,
	2025			2024
Current tax expense:
Federal	$	(268	)	$	1,271
Foreign		282			(1,107	)
State		366			584
Total current		380			748
Deferred tax expense (benefit):
Federal		(617	)		(1,078	)
Foreign		1,101			480
State		41			(180	)
Total deferred tax expense:		525			(778	)
Total income tax expense (benefit)	$	905		$	(30	)

Schedule of Reconciliation of Federal Statutory Rate to Company's Effective Tax Rate

The following table presents a reconciliation of the federal statutory rate to the Company’s effective tax rate:


	Year Ended December 31, 2025
	Amount			%
US Federal Statutory Income Tax Rate	$	(600	)		21.0	%
State income taxes, net of federal effect(1)		334			-11.7	%
Tax credits
Research credits		(784	)		27.5	%
Nontaxable and nondeductible Items, net
Meals & Entertainment		133			-4.7	%
Transaction Costs		210			-7.4	%
Foreign Taxes		(78	)		2.7	%
Capital Gain		876			-30.7	%
Stock Comp (Windfall)		41			-1.4	%
367a Gain		63			-2.2	%
Goodwill Impairment		191			-6.7	%
Other Nontaxable and non-deductible items		10			-0.4	%
Return to provision and other true ups		(1,674	)		58.6	%
Other		(2	)		0.1	%
Foreign tax effects
Canada
Rate differential		32			-1.1	%
Payable true up		362			-12.7	%
Other		2			-0.1	%
Withholding		914			-32.0	%
Future withholding		(183	)		6.4	%
Germany
Rate differential		(10	)		0.4	%
Trade tax		81			-2.8	%
Netherlands
Rate differential		(27	)		0.9	%
Other		(81	)		2.8	%
United Kingdom
Rate differential		(196	)		6.9	%
Nontaxable and nondeductible Items, net
Patent Box Deduction		(78	)		2.7	%
Other		7			-0.2	%
Research credits		(16	)		0.6	%
Change in valuation allowance		1,299			-45.5	%
Other		15			-0.5	%
Kuwait
Branch income tax		64			-2.2	%
Effective tax rate	$	905			-31.7	%

(1) State taxes in Texas represented the majority (greater than 50 percent) of the tax effect in this category.

The following table presents a reconciliation of the federal statutory rate to the Company’s effective tax rate in accordance with the guidance prior to the adoption of ASU 2023-09, Improvements to Income Tax Disclosure:


	December 31,
	2024
U.S. federal tax benefit at statutory rate		21.0	%
State taxes, net of federal benefit		12.7	%
Permanent differences		22.7	%
Permanent differences related to foreign items		-5.8	%
Transfer pricing		1.2	%
Foreign rate differential		1.4	%
Foreign taxes		-10.4	%
Valuation allowance		-0.3	%
Credits		-12.1	%
Income taxes deferred adjustment		27.0	%
Income taxes payable adjustment		-58.8	%
Other		0.4	%
Effective tax rate		-1.0	%

Schedule of Income Taxes Paid

The following table presents income taxes paid for the years ended December 31, 2025 and 2024 (in thousands):


	Year Ended December 31,
	2025		2024
Income taxes paid (net of refunds):
Federal	$	—	$	2,663
State:
New Mexico		—		175
Texas		495		435
Louisiana		70		22
Other		62		90
Total State		627		722
Foreign
Canada		797		—
Total cash paid for income tax	$	1,424	$	3,385

Schedule of Deferred Tax Assets and Deferred Tax Liabilities

The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2025 and 2024 are presented below (in thousands):


	Year Ended December 31,
	2025			2024
Deferred tax assets
Net operating loss carryforward	$	8,213		$	3,488
Allowance for credit losses		296			321
Share-based compensation		2,262			1,800
Bonus accrual		151			70
Inventory		200			220
Intangible assets		—			1,815
Federal credits		784			3,252
Other		6,073			2,681
Gross deferred tax assets		17,979			13,647
Valuation allowance		(4,228	)		(3,019	)
Net deferred tax assets		13,751			10,628
Deferred tax liabilities
Depreciation on property, plant, and equipment		(10,750	)		(10,902	)
Withholding tax on unremitted earnings		(247	)		(431	)
Intangible assets		(4,277	)		—
Other		(5,643	)		(5,221	)
Deferred tax liabilities		(20,917	)		(16,554	)
Net deferred liabilities	$	(7,167	)	$	(5,926	)

Drilling Tools International Corp 10-K