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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Tax Disclosure [Text Block] | Note 13—Income Taxes The Company does not file a consolidated return with its foreign subsidiaries. The Company files federal and state returns and its foreign subsidiaries file returns in their respective jurisdiction. For the years ended 2022, 2021 and 2020, the provision for income taxes, which included federal, state and foreign income taxes, was a benefit of $41.0 million, an expense of $0.2 million, and an expense of $0.7 million, respectively, reflecting effective tax provision rates of (81.9%), (4.0%), and (5.5%), respectively. The 2022 tax benefit of $41.0 million included a discrete tax benefit of $49.8 million primarily comprised of the valuation allowance release. Absent these discrete tax benefits, our effective tax rate for 2022 was 17.6%, primarily due to taxes on federal, state, and foreign income. For the years ended 2021 and 2020, provision for income taxes includes federal, state and foreign income taxes at effective tax rates of (4.0%) and (5.5%). Exclusive of discrete items, the effective tax provision rate would be (10.7%) in 2021 and (7.7%) in 2020. As of December 31, 2022 and 2021, the Company had net deferred tax assets of $57.8 million related to the U.S. and foreign jurisdictions and net deferred tax liabilities of approximately $51,000 primarily related to foreign jurisdictions, respectively. Provision for income taxes reflected in the accompanying consolidated statements of operations are comprised of the following (in thousands):
|  | Year ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Federal |  | $ | 11,293 |  |  | $ | 1 |  |  | $ | (212 | )
State and local |  |  | 2,031 |  |  |  | 43 |  |  |  | 134 |
Foreign |  |  | 3,523 |  |  |  | 254 |  |  |  | 704 |
Total Current |  |  | 16,847 |  |  |  | 298 |  |  |  | 626 |
Deferred |  |  | (57,855 | ) |  |  | (72 | ) |  |  | 109 |
Total |  | $ | (41,008 | ) |  | $ | 226 |  |  | $ | 735 |
The components of deferred tax assets/(liabilities) are as follows (in thousands):
|  | December 31, |
|  | 2022 |  |  | 2021 |
Net deferred tax assets/(liabilities): |  |  |  |  |  |  |  |
Reserve for sales allowances and possible losses |  | $ | 469 |  |  | $ | 356 |
Accrued expenses |  |  | 3,884 |  |  |  | 2,998 |
Prepaid royalties |  |  | 599 |  |  |  | 1,298 |
Accrued royalties |  |  | 465 |  |  |  | 1,731 |
Inventory |  |  | 9,574 |  |  |  | 9,313 |
State income taxes |  |  | 420 |  |  |  | 17 |
Property and equipment |  |  | 1,701 |  |  |  | 1,832 |
Goodwill and intangibles |  |  | 2,412 |  |  |  | 4,266 |
Share-based compensation |  |  | 738 |  |  |  | 593 |
Interest limitation |  |  | 2,256 |  |  |  | 3,595 |
Undistributed foreign earnings |  |  | (479 | ) |  |  | (2,919 | )
Operating lease right-of-use assets |  |  | (3,989 | ) |  |  | (4,117 | )
Operating lease liabilities |  |  | 4,120 |  |  |  | 4,518 |
Federal and state net operating loss carryforwards |  |  | 31,263 |  |  |  | 42,731 |
Credit carryforwards |  |  | 110 |  |  |  | 110 |
Research & development capitalization |  |  | 3,792 |  |  |  | - |
Other |  |  | 1,195 |  |  |  | 902 |
Gross |  |  | 58,530 |  |  |  | 67,224 |
Valuation allowance |  |  | (726 | ) |  |  | (67,275 | )
Total net deferred tax assets (liabilities) |  | $ | 57,804 |  |  | $ | (51 | )
Provision for income taxes varies from the U.S. federal statutory rate. The following reconciliation shows the significant differences in the tax at statutory and effective rates:
|  | Year ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Federal income tax expense |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
State income tax expense, net of federal tax effect |  |  | 1.9 |  |  |  | 3.3 |  |  |  | 7.7 |
Effect of differences in U.S. and foreign statutory rates |  |  | (1.3 | ) |  |  | (0.5 | ) |  |  | 1.2 |
Uncertain tax positions |  |  | 5.0 |  |  |  | 7.0 |  |  |  | 3.4 |
Provision to return |  |  | 21.2 |  |  |  | 6.3 |  |  |  | (3.8 | )
Change in tax rate |  |  | 6.9 |  |  |  | 6.5 |  |  |  | 4.4 |
Foreign derived intangible income |  |  | (10.6 | ) |  |  | 0.0 |  |  |  | 0.0 |
Non-deductible expenses |  |  | 8.9 |  |  |  | (68.7 | ) |  |  | (26.2 | )
PPP Loan |  |  | 0.0 |  |  |  | 29.1 |  |  |  | 0.0 |
Foreign tax credit |  |  | (3.6 | ) |  |  | 0.0 |  |  |  | 0.0 |
Unrealized Loss |  |  | 0.3 |  |  |  | (138.9 | ) |  |  | (10.0 | )
Undistributed foreign earnings |  |  | (1.4 | ) |  |  | (8.7 | ) |  |  | (3.3 | )
Valuation allowance |  |  | (130.2 | ) |  |  | 139.6 |  |  |  | 0.1 |
|  |  | (81.9 | )% |  |  | (4.0 | )% |  |  | (5.5 | )%
Deferred taxes result from temporary differences between tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. The temporary differences result from costs required to be capitalized for tax purposes by the U.S. Internal Revenue Code (“IRC”), and certain items accrued for financial reporting purposes in the year incurred but not deductible for tax purposes until paid. The components of income (loss) before provision for income taxes are as follows (in thousands):
|  | Year ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Domestic |  | $ | 31,588 |  |  | $ | (7,881 | ) |  | $ | (18,748 | )
Foreign |  |  | 18,487 |  |  |  | 2,219 |  |  |  | 5,339 |
|  | $ | 50,075 |  |  | $ | (5,662 | ) |  | $ | (13,409 | )
The Company uses a recognition threshold and measurement process for recording in the consolidated financial statements uncertain tax positions (“UTP”) taken or expected to be taken in a tax return. The following table provides further information of UTPs that would affect the effective tax rate, if recognized, as of December 31, 2022 (in millions):
Balance, December 31, 2019 |  | $ | 1.6 |
Settlements |  |  | (0.6 | )
Balance, December 31, 2020 |  |  | 1.0 |
Settlements |  |  | (0.8 | )
Balance, December 31, 2021 |  |  | 0.2 |
Additions based on tax positions related to the current year |  |  | 0.1 |
Additions for tax positions of prior years |  |  | 2.8 |
Settlements |  |  | (0.2 | )
Balance, December 31, 2022 |  | $ | 2.9 |
Current interest on uncertain income tax liabilities is recognized as a component of the income tax provision recognized in the consolidated statements of operations. During 2022, the Company recognized $0.2 million of interest expense related to UTPs. The Company did not recognize any interest expense relating to UTPs in 2021. The Company does not expect its gross unrecognized tax benefits to significantly change within the next 12 months. Tax years 2019 through 2021 remain subject to examination in the United States. The tax years 2018 through 2021 are generally still subject to examination in the various states. Furthermore, all net operating losses and tax credit carryforwards are still subject to review given that the statute of limitation for these items would begin in the year of utilization. The tax years 2016 through 2021 are still subject to examination in Hong Kong. In the normal course of business, the Company is audited by federal, state and foreign tax authorities. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets by jurisdiction. The Company is required to establish a valuation allowance for the U.S. deferred tax assets and record a charge to income if Management determines, based upon available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets may not be realized. Based on the Company’s evaluation of all positive and negative evidence, as of December 31, 2022, a valuation allowance of $0.7 million has been recorded against the deferred tax assets that more likely than not will not be realized. For the year ended December 31, 2022, the valuation allowance decreased from $67.3 million at December 31, 2021. The release of the valuation allowance as of December 31, 2022 was primarily due to a pattern of sustained profitability such that it is more likely than not that the deferred income tax assets will be realized. The net deferred tax assets of $57.8 million consists of the net deferred tax assets in the US and foreign jurisdictions, where the Company is in a cumulative income position. The net deferred tax liabilities of $51,000 in 2021 represent the net deferred tax liabilities in the foreign jurisdiction, where the Company is in a cumulative income position. Pursuant to the Internal Revenue Code of 1986, as amended (the “Code”) Sections 382 and 383, annual use of a company’s NOL and tax credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% within a three-year period. The amount of the annual limitation is determined based on the value of the company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. If limited, the related tax asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. The Company had established a valuation allowance as the realization of such deferred tax assets had not met the more likely than not threshold requirement. Due to the existence of the valuation allowance, further changes in the Company’s unrecognized tax benefits did not impact the Company’s effective tax rate for 2021. During 2022, the Company completed an assessment of the available net operating loss and tax credit carryforwards under Section 382 and 383 and determined that the Company underwent two ownership changes during the period from 2019 to 2021. As a result, net operating loss and tax credit carryforwards attributable to the pre-ownership changes are subject to substantial annual limitations under Section 382 and 383 of Code due to the ownership changes. The Company has adjusted their previously reported net operating loss and tax credit carryforwards to address the impact of the ownership changes. This resulted in a net reduction of available gross federal and state net operating loss carryforwards of approximately $53 million and $85 million, respectively which related to the year ended December 31, 2021 and prior. The tax effected federal and state net operating loss carryforwards (“NOL”) reduction amounts were $16.8 million. This also resulted in a reduction of federal tax credit carryforwards of approximately $0.6 million related to the years ended December 31, 2021 and prior. Accordingly, the net operating loss and tax credit carryforwards presented above for the year ending December 31, 2021 were reduced by $16.8 million and $0.6 million, respectively, with a corresponding reduction to the valuation allowance of $17.4 million. At December 31, 2022, the Company has U.S. federal net NOLs, of approximately $136 million, which will begin to expire in 2033. At December 31, 2022, the Company has state NOLs of approximately $40 million, which will begin to expire in 2023.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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