Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Our deferred tax assets and liabilities reflect operations as of May 30, 2026 and May 31, 2025. Significant components were as follows (in thousands):

During fiscal 2026, the Company recorded R&D credits of $0.3 million. These credits represent the expected U.S. federal credits to be claimed for fiscal 2026.

As of May 30, 2026, net deferred tax assets related to domestic state NOL carryforwards at May 31, 2025 amounted to approximately $1.8 million, compared to $1.9 million at May 31, 2025. Net deferred tax assets related to foreign NOL carryforwards was $0.3 million as of May 30, 2026, and $0.1 million as of May 31, 2025 with various or indefinite expiration dates. During the fourth quarter of fiscal 2026 we decreased the valuation allowance on the state net operating losses by $0.5 million resulting in a total valuation allowance against state net operating losses of $1.2 million.

We have historically determined that undistributed earnings of our foreign subsidiaries, to the extent of cash available, will be repatriated to the U.S. The deferred tax liability on the outside basis difference is now primarily withholding tax on future dividend distributions. The deferred tax liability related to undistributed earnings of our foreign subsidiaries was $0 in fiscal 2026 and $0 million in fiscal 2025.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to support a more likely than not assertion that its deferred tax assets will be realized. A significant component of objective evidence evaluated was the cumulative income or loss incurred in each jurisdiction over the three-year period ended May 30, 2026. We considered other positive evidence in determining the need for a valuation allowance in the U.S. including the subpart F and GILTI inclusions of our foreign earnings, the changes in our business performance in recent years, and the utilization of federal NOLs. The weight of this positive evidence is sufficient to outweigh other negative evidence in evaluating our need for a valuation allowance in the U.S. federal jurisdiction. As a result of the positive evidence outweighing the negative evidence for the year ended May 30, 2026, no additional valuation allowance on the U.S. federal deferred tax items was recorded. As of May 30, 2026, we recorded a $0.5 million valuation allowance decrease on state NOLs as there was more positive evidence supporting the Company’s ability to utilize the state NOLs, including higher book income in fiscal 2026 and fiscal 2027 projections.

As of May 30, 2026, a valuation allowance of $2.8 million was recorded, representing the portion of the deferred tax asset that management does not believe is more likely than not to be realized. The valuation allowance as of May 30, 2025 was $2.8 million. The valuation allowance relates to state NOLs ($1.2 million) and deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred ($1.6 million). The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

Income taxes paid (net of refunds) were $1.8 million during fiscal 2025 and $0 during fiscal 2024.

In the normal course of business, we are subject to examination by taxing authorities throughout the world. Years prior to fiscal 2016 are closed for examination under the statute of limitation for U.S. federal, and U.S. state. In Netherlands, years prior to fiscal 2021 are closed for examination. We are under examination in Germany for fiscal years 2019 to 2022. The Company is under audit in Illinois for fiscal 2022 and fiscal 2023. We have no other current open audits in the U.S.

The Company recorded a $0.4 million uncertain tax positions as of May 30, 2026 as compared to $0.3 million as of May 31, 2025 and $0.1 million as of June 1, 2024. We record interest related to uncertain tax positions in the income tax expense line item within the Consolidated Statements of Comprehensive Income (Loss). The Company recognizes interest accrued related to unrecognized tax benefits and penalties in operating expenses. We have recorded a liability of less than $0.1 million for interest as of May 30, 2026, May 31, 2025 and June 1, 2024.