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Income Taxes | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Loss before income taxes consisted of the following:
| Year Ended December 31,
2024 |  | 2023 |  | 2022
United States | $ | (5,016) |  |  | $ | (8,904) |  |  | $ | (7,586) |
Foreign | (16,645) |  |  | (88,061) |  |  | (173,028) |
Loss before income taxes | $ | (21,661) |  |  | $ | (96,965) |  |  | $ | (180,614) |
The components of the provision for (benefit from) income taxes consisted of the following:
| Year Ended December 31,
| 2024 |  | 2023 |  | 2022
Current: |  |  |  |  |
Federal | $ | 1,588 |  |  | $ | 1,496 |  |  | $ | 1,059 |
State | 826 |  |  | 649 |  |  | 354 |
Foreign | 424 |  |  | 465 |  |  | (1,208) |
Total | 2,838 |  |  | 2,610 |  |  | 205 |
Deferred: |  |  |  |  |
Federal | 1,654 |  |  | (2,305) |  |  | (2,325) |
State | (115) |  |  | 467 |  |  | (126) |
Foreign | (48) |  |  | 1,149 |  |  | (1,671) |
Total | 1,491 |  |  | (689) |  |  | (4,122) |
Provision for (benefit from) income taxes | $ | 4,329 |  |  | $ | 1,921 |  |  | $ | (3,917) |
The provision for (benefit from) income taxes differs from the tax computed using the statutory U.S. federal income tax rate of 21% as a result of the following items:
| Year Ended December 31,
| 2024 |  | 2023 |  | 2022
Benefit from income taxes at U.S. statutory rate | $ | (4,549) |  |  | $ | (20,363) |  |  | $ | (37,929) |
State income taxes, net of federal income tax benefit | 558 |  |  | 512 |  |  | 250 |
Permanent differences | 618 |  |  | 555 |  |  | 266 |
Foreign tax rate differential | (1,532) |  |  | (8,220) |  |  | (14,900) |
Equity-based compensation | 240 |  |  | 1,082 |  |  | 860 |
Goodwill impairment | — |  |  | 21,444 |  |  | 51,990 |
Change in valuation allowance | 9,186 |  |  | 6,987 |  |  | — |
Change in tax basis of Culture Kings’ inventory and intangibles | — |  |  | — |  |  | (2,233) |
Intra-entity transfer of certain intellectual property rights | — |  |  | — |  |  | (1,030) |
Other | (192) |  |  | (76) |  |  | (1,191) |
Provision for (benefit from) income taxes | $ | 4,329 |  |  | $ | 1,921 |  |  | $ | (3,917) |
The foreign tax rate differential relates to differences between the income tax rates in effect in the foreign countries in which the Company operates, in particular Australia where the corporate tax rate is 30%. The components of net deferred tax assets were as follows:
| Year Ended December 31,
| 2024 |  | 2023
Deferred tax assets: |  |  |
Transaction costs | $ | 341 |  |  | $ | 843 |
Accruals and reserves | 6,175 |  |  | 5,201 |
Lease liabilities | 18,742 |  |  | 11,391 |
Asset retirement obligation | — |  |  | 165 |
Inventory | 3,462 |  |  | 2,427 |
Foreign exchange gains / losses | 653 |  |  | 878 |
Interest limitation | 2,811 |  |  | 1,034 |
Loss carryforwards | 9,949 |  |  | 10,472 |
Other | 679 |  |  | 387 |
Subtotal | 42,812 |  |  | 32,798 |
Less: Valuation allowance | (18,777) |  |  | (12,158) |
Total deferred tax assets | 24,035 |  |  | 20,640 |
Deferred tax liabilities: |  |  |
Property and equipment | (754) |  |  | (749) |
Intangible assets | (5,069) |  |  | (6,850) |
Right-of-use assets | (18,066) |  |  | (11,472) |
Asset retirement obligations | (99) |  |  | — |
Total deferred tax liabilities | (23,988) |  |  | (19,071) |
Net deferred tax assets | $ | 47 |  |  | $ | 1,569 |
The Company had gross deferred tax assets of $42.8 million and $32.8 million and gross deferred tax liabilities of $24.0 million and $19.1 million at December 31, 2024 and 2023, respectively. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. When weighing all available evidence associated with the realizability of its deferred tax assets, in particular, uncertainties related to the future generation of taxable income, the Company determined that it was not “more likely than not” that it would be able to realize the tax benefits associated with certain of its net deferred tax assets. Based on this evaluation, a full valuation allowance of $18.8 million has been recorded on the net deferred tax assets in the Company’s United States and Australian businesses. For the year ended December 31, 2024, the valuation allowance increased by $6.6 million, primarily due to the Company placing a valuation allowance on its U.S. deferred tax assets. As of December 31, 2024, the Company had a $18.0 million Australian net operating loss carryforward and a $14.3 million Australian capital loss carryforward, as well as a U.S. capital loss carryforward of $1.0 million on the sale of Rebdolls. As of December 31, 2023, the Company had a $26.0 million Australian net operating loss carryforward and a $15.8 million Australian capital loss carryforward, as well as a U.S. capital loss carryforward of $1.7 million on the sale of Rebdolls. The net operating losses and the Australian capital loss carryforwards have no expiration. The U.S. capital loss carryforward will expire in 2028. The Company has not provided deferred taxes on unremitted earnings attributable to foreign subsidiaries that have been considered permanently reinvested. As of December 31, 2024, there are no unremitted earnings from these operations. As of December 31, 2024 and 2023, the Company had no uncertain tax positions. The Company is subject to taxation in the United States, Cayman Islands and Australia. For U.S. federal income tax purposes, 2021 and later tax years remain open for examination by the tax authorities under the normal three-year statute of limitations. For major U.S. states, 2020 and later tax years remain open for examination by the tax authorities under a four-year statute of limitations. For Australia, 2020 and subsequent tax years remain subject to examination. Tax Contingencies The Company is subject to income taxes in the United States and Australia. Significant judgment is required in evaluating the Company’s tax positions and determining the provision for income taxes. During the ordinary course of business, the Company considers tax positions for which the ultimate tax determination is uncertain for the purpose of determining whether a reserve is required, despite the Company’s belief that the tax positions are fully supportable. To date the Company has not established a reserve provision because the Company believes that all tax positions are highly certain.

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