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Income Taxes
 9 Months Ended
Sep. 30, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

13.

Income Taxes

 

During the three and nine months ended September 30, 2024 and 2023, the Company recorded the following income tax provision (in thousands) and effective tax rate:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Income tax provision

 

$

1,074

 

 

$

3,678

 

 

$

5,117

 

 

$

7,816

 

Effective tax rate

 

 

27.33

%

 

 

32.87

%

 

 

22.80

%

 

 

33.53

%

 

The change of effective tax rate for the three and nine months ended September 30, 2024 and 2023 was primarily due the consummation of the Contributions in October 2023 and the fluctuation of the nondeductible expenses of Gyre Pharmaceuticals.

 

As of September 30, 2024, after consideration of certain limitations (see below), the Company had approximately $193.5 million federal and $10.5 million state net operating loss (“NOL”) carryforwards for U.S. tax purposes available to reduce future taxable income which, if unused, will begin to expire in 2037 for federal and 2034 for state tax purposes. The federal NOL carryforward includes $191.9 million that have an indefinite life.

 

If the Company experiences a greater than 50% aggregate change in ownership over a three-year period (a Section 382 ownership change), utilization of its pre-change NOL carryforwards are subject to annual limitation under Section 382 of the Internal Revenue Code (California has similar provisions). The annual limitation is determined by multiplying the value of the Company’s stock at the time of such ownership change by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the NOL carryforwards before utilization. The Company determined that ownership changes under Section 382 occurred on December 31, 2007, August 20, 2015, April 13, 2017, February 15, 2018, February 18, 2020, and December 26, 2022. Approximately $156.5 million and $75.2 million of the NOL carryforwards will expire unutilized for federal and California state income tax purposes, respectively. The ability of the Company to use its remaining NOL and tax credit carryforwards may be further limited if the Company experiences a Section 382 ownership change as a result of future changes in its stock ownership.