Note 13 - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

13. INCOME TAXES

Loss before provision for income taxes consisted of the following for the periods indicated (in thousands):

	December 31,			December 31,
	2022			2023
Domestic	$	(196,166	)	$	(71,600	)
International		(502	)		(3,831	)
Total	$	(196,668	)	$	(75,431	)

The components of the Company’s income tax provision were as follows for the periods indicated (in thousands):

	December 31,			December 31,
	2022			2023
Current:
Federal	$	—		$	—
State		101			73
Foreign		69			213
Total current income tax expense		170			286
Deferred:
Federal		(270	)		—
State		(35	)		—
Foreign		(241	)		(1,153	)
Total deferred income tax (benefit)		(546	)		(1,153	)
Total income tax (benefit)	$	(376	)	$	(867	)

The reconciliation of the Federal statutory income tax provision to the Company’s effective income tax provision is as follows for the periods indicated (in thousands):

	December 31,			December 31,
	2022			2023
Income tax benefit at statutory rates	$	(41,300	)	$	(15,839	)
Permanent differences		—			—
Debt extinguishment		(481	)		—
Warrant liabilities		4,455			(482	)
Stock compensation		4,410			1,949
Change in FV contingent consideration		—			—
Other permanent differences		3			3
Foreign rate differential		14			(95	)
State income taxes, net of federal tax benefit		(5,644	)		(2,052	)
Other		(389	)		(431	)
Prior year true-up adjustments		(352	)		2,827
Valuation allowance		38,908			13,253
Total income tax (benefit)	$	(376	)	$	(867	)

The Company’s effective tax rate was (0.19)% and 1.15% for the years-ended December 31, 2022 and December 31, 2023, respectively. The effective tax rate for 2022 was principally due to tax expense incurred on the operation of acquired goodwill that is deductible for tax purposes and which was fully impaired for book purposes during the year. The effective tax rate for 2023 was principally due to tax expense incurred on the operations of the Company's UK business, non-deductible executive stock compensation expense, and the change in fair value of the warrant liability.

The Company’s deferred tax assets and liabilities as of the dates indicated were as follows (in thousands):

	December 31, 2022			December 31, 2023
Deferred tax assets:
Allowance for doubtful accounts	$	—		$	31
Inventory Reserve		—			1,671
Other Accruals		—			1,402
Net operating loss carryforwards		51,889			53,361
Stock options		1,712			2,239
Deferred revenue		—			—
Interest expense limitation		10,959			11,317
Intangibles (definite life)		181			9,422
Intangibles (indefinite life)		21,386			19,749
Other		1,972			2,060
Total deferred tax assets before valuation allowance		88,099			101,252
Valuation allowance		(86,224	)		(99,477	)
Net deferred tax assets		1,875			1,775
Deferred tax liabilities:
Fixed assets		(3	)		(22	)
Goodwill		—			—
Prepaid expenses		(1,808	)		—
Intangibles		—			(1,759	)
Contingent consideration		(1,092	)		—
Other		(130	)		—
Net deferred tax liabilities		(3,033	)		(1,781	)
Deferred tax liability, net	$	(1,158	)	$	(6	)

The Company has temporary differences due to differences in recognition of revenue and expenses for tax and financial reporting purposes, principally related to net operating losses, inventory, depreciation, and other expenses that are not currently deductible or realizable. At December 31, 2022, the Company had approximately $216.4 million of gross federal NOLs, which will begin to expire in fiscal year 2034 if unused and approximately $121.3 million apportioned state and local NOLs. At December 31, 2023, the Company had approximately $222.2 million of gross federal NOLs which will begin to expire in fiscal year 2034 if unused. The Company also has approximately $128.1 million apportioned state and local NOLs that expire between 2026 and 2036, depending on the state, if not used. The NOL carryforwards for federal and state income tax purposes which, generally, can be used to reduce future taxable income. The Company’s ability to utilize its NOL carryforwards may be limited pursuant to Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), if the Company has had a change in ownership of more than 50% of its capital stock over a three-year period pursuant to Section 382 of the Code. These complex changes of ownership rules generally focus on ownership changes involving stockholders owning directly or indirectly 5% or more of a company’s stock, including certain public “groups” of stockholders as set forth by Section 382 of the Code, including those arising from new stock issuances and other equity transactions.

In response to COVID-19, various governments worldwide have enacted, or are in the process of enacting, measures to provide relief to businesses negatively affected by the pandemic. On March 27, 2021, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law in the U.S. The CARES Act provides relief to U.S. corporations through financial assistance programs and modifications to certain payroll and income tax provisions. In connection with the CARES Act and other financial relief measures worldwide, the Company has utilized $1.3 million of payroll related credits for the year-ended December 31, 2022. The payroll related credits are recorded in other current liabilities within the consolidated balance sheet.

The Company regularly assesses the realizability of its deferred tax assets and establishes a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due to the Company’s history of net operating losses, the Company believes it is more likely than not its federal, state and foreign deferred tax assets will not be realized as of December 31, 2023.

The Company’s major taxing jurisdictions are New Jersey, New York, Florida, Texas, Pennsylvania, Tennessee, Virginia, California, and the United Kingdom. The Company files a U.S. Consolidated income tax return as well as tax returns in certain foreign jurisdictions. The Company is subject to examination in these jurisdictions for all years since inception. Fiscal years outside the normal statute of limitations remain open to audit due to tax attributes generated in the early years which have been carried forward and may be audited in subsequent years when utilized. The Company is not currently under examination for income taxes in any jurisdiction. The Company may be subject to audits covering a variety of tax matters by taxing authorities in any taxing jurisdiction where the Company conducts business. While the Company believes that the tax returns filed, and tax positions taken are supportable and accurate, some tax authorities may not agree with the positions taken. This can give rise to tax uncertainties which, upon audit, may not be resolved in the Company’s favor. As of December 31, 2022 and 2023, the Company has not recorded any tax contingency accruals for uncertain tax positions.

On August 16, 2022, Congress passed the Inflation Reduction Act of 2022 (the “IRA”). The IRA introduces a new 15% corporate alternative minimum tax and includes a substantial package of energy and climate-related provisions, among other revenue raisers and incentives. A 1% excise tax on stock repurchases was also introduced in the IRA and this is effective January 1, 2023. On June 11, 2022, Congress passed the CHIPS Act of 2022. CHIPS adds a one-time investment tax credit equal to 25% of a company’s investment in facilities that manufacture semiconductors or semiconductor manufacturing equipment. We evaluated the provisions of the IRA and the CHIPS Act and determined that there was no material impact for the year-ended December 31, 2023.