XML 39 R18.htm IDEA: XBRL DOCUMENT v3.23.2
Income Taxes
 12 Months Ended
May 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The components of loss before income tax benefit are as follows:
Year ended May 31,
(in thousands)202320222021
Loss before tax expense:
U.S.$(45,240)$(28,495)$(31,595)
Non-U.S.(9,197)(1,454)(4,457)
$(54,437)$(29,949)$(36,052)
Income tax benefit is comprised of the following:
Year ended May 31,
(in thousands)202320222021
Current
U.S.129 120 100 
Non U.S.187 186 201 
316 306 301 
Deferred
U.S.(207)(3,415)(3,375)
Non U.S.(2,104)(293)(1,430)
(2,311)(3,708)(4,805)
Income tax benefit$(1,995)$(3,402)$(4,504)
Temporary differences that give rise to deferred tax assets and liabilities are summarized as follows:
(in thousands)May 31, 2023May 31, 2022
Deferred tax assets
Net operating loss carryforward$40,460 $40,759 
Stock-based compensation4,263 4,617 
Federal and state R&D tax credit carryforward7,311 6,320 
Inventories724 853 
Expenses incurred not currently deductible6,986 1,914 
Accrued liabilities78 72 
Gross deferred tax asset59,822 54,535 
Deferred tax liabilities
Depreciation and amortization46,828 50,320 
46,828 50,320 
Valuation allowance(25,759)(20,203)
Net deferred tax liability$(12,765)$(15,988)
The net deferred tax liability in the U.S. as of May 31, 2023 and 2022 principally relates to tax amortization of intangibles that have an indefinite reversal period for book purposes, also known as a “naked credit deferred tax liability”, that cannot be considered as a source of income to recover the deferred tax asset. In addition, included in the net deferred tax liability as of May 31, 2023 and 2022 is a net deferred tax liability of $5.8 million and $8.8 million, respectively that was related to the stock acquisition of Eximo Medical Ltd. primarily related to book intangibles partially offset by tax net operating losses and capitalized R&D expenditures.
The Company's U.S. Federal net operating loss carryforwards as of May 31, 2023 after considering IRC Section 382 limitations are $169.7 million. The expiration of the Federal net operating loss carryforwards are as follows: $5.2 million between 2023 and 2024, $79.4 million between 2028 and 2037 and $85.1 million indefinitely.
The Company's state net operating loss carryforwards as of May 31, 2023 after considering remaining IRC Section 382 limitations are $24.1 million which expire in various years from 2029 to 2042. The Company has Israel tax net operating losses of $16.3 million that can be carried forward indefinitely.
Beginning in 2018, except for the Global Intangible Low-Taxed Income, the Company will no longer record United States federal income tax on its share of the income of its foreign subsidiaries, nor will it record a benefit for foreign tax credits related to that income. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to withholding taxes payable, where applicable, to foreign countries, but would have no further federal income tax liability. The Company intends to indefinitely reinvest the unremitted foreign earnings of all other subsidiaries as of May 31, 2023, as well as all subsequent earnings generated by all of our foreign subsidiaries. Determining the amount of unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practical.
The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighted the evidence based on its objectivity. Evidence the Company considered included its history of net operating losses, which resulted in the Company recording a full valuation allowance for its deferred tax assets in fiscal year 2016, except the naked credit deferred tax liability.
Based on the review of all available evidence, the Company determined that it has not yet attained a sustained level of profitability and the objectively verifiable negative evidence outweighed the positive evidence. Therefore, the Company has provided a valuation allowance on its federal and state net operating loss carryforwards, federal and state R&D credit carryforwards and other net deferred tax assets that have a limited life and are not supportable by the naked credit deferred tax liability sourced income as of May 31, 2023. The Company will continue to assess the level of the valuation allowance required. If sufficient positive evidence exists in future periods to support a release of some or all of the valuation allowance, such a release would likely have a material impact on the Company’s results of operations.
The Company's consolidated income tax expense has differed from the amount that would be provided by applying the U.S. Federal statutory income tax rate to the Company's income before income taxes for the following reasons:
Year ended May 31,
(in thousands)202320222021
Income tax benefit at federal statutory tax rate of 21.0%, 21.0% and 21.0%, respectively$(11,432)$(6,289)$(7,571)
State income taxes, net of Federal tax benefit(353)(536)(462)
Impact of Non-U.S. operations14 199 (293)
Research and development tax credit(991)395 (1,303)
Meals and entertainment258 179 116 
Goodwill impairment3,055 — — 
Non-deductible executive compensation 366 686 107 
Change in valuation allowance5,556 3,168 3,921 
Stock based compensation505 (1,616)526 
Other1,027 412 455 
Income tax benefit$(1,995)$(3,402)$(4,504)
The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits:
Year ended May 31,
(in thousands)202320222021
Unrecognized tax benefits balance at June 1 $464 $464 $464 
Decrease in gross amounts of tax positions related to prior years due to U.S. tax reform— — — 
Decrease due to lapse in statute of limitations— — — 
Unrecognized tax benefits balance at May 31$464 $464 $464 
The table above includes unrecognized tax benefits associated with the calculation of limitations placed on the utilization of tax attributes related to an acquired company. If recognized, $0.5 million would result in adjustments to other tax accounts.  
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. There are no accrued interest and penalties recognized in the Consolidated Balance Sheets as of May 31, 2023 and May 31, 2022.
The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world. Fiscal years 2020 through 2022 remain open to examination by the various tax authorities.
The Company does not anticipate that the amount of unrecognized tax benefits will significantly change in the next twelve months.