Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes

v3.25.4
Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Loss before income taxes consisted of the following:
Year Ended December 31,
2025 2024 2023
United States
 $ (22,090) $ (5,016) $ (8,904)
Foreign
 (7,225) (16,645) (88,061)
Loss before income taxes
 $ (29,315) $ (21,661) $ (96,965)
The components of the provision for income taxes consisted of the following:
Year Ended December 31,
2025 2024 2023
Current:
Federal
 $ 1,261  $ 1,588  $ 1,496 
State
 702  826  649 
Foreign
 116  424  465 
Total
 2,079  2,838  2,610 
Deferred:
Federal
 —  1,654  (2,305)
State
 —  (115) 467 
Foreign
 40  (48) 1,149 
Total 40  1,491  (689)
Provision for income taxes
 $ 2,119  $ 4,329  $ 1,921 
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before taxes for years prior to the adoption of ASU 2023-09 is as follows:
Year Ended December 31,
2024 2023
Benefit from income taxes at U.S. statutory rate
 $ (4,549) $ (20,363)
State income taxes, net of federal income tax benefit
 558  512 
Permanent differences
 618  555 
Foreign tax rate differential
 (1,532) (8,220)
Equity-based compensation
 240  1,082 
Goodwill impairment
 —  21,444 
Change in valuation allowance
 9,186  6,987 
Other
 (192) (76)
Provision for (benefit from) income taxes
 $ 4,329  $ 1,921 
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%.
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows:
Year Ended December 31,
2025
Amount
Percent
Benefit from income taxes at U.S. federal statutory rate
 $ (6,256) 21  %
State and local income tax, net of federal income tax effect1
419  (1) %
Foreign tax effects:
Australia
Rate differential
 (707) 2  %
Changes in Valuation Allowance
 4,032  (14) %
Nontaxable or nondeductible items
 (1,564) 5  %
Other foreign jurisdiction
 12  —  %
Effect of cross border tax laws
Subpart F income inclusion
 1,125  (4) %
Changes in valuation allowance
 4,344  (15) %
Nontaxable or nondeductible items
 542  (2) %
Changes in unrecognized tax benefits
 172  (1) %
Provision for income taxes
 $ 2,119  (7) %
1 The states and local jurisdictions that contribute to the majority (greater than 50%) of the effect in this category include California and New York.
The components of net deferred tax assets were as follows:
Year Ended December 31,
2025 2024
Deferred tax assets:
Transaction costs $ 4  $ 341 
Accruals and reserves 4,894  6,175 
Lease liabilities 26,207  18,742 
Inventory
 2,593  3,462 
Foreign exchange gains / losses 2,635  653 
Interest limitation
 5,557  2,811 
Loss carryforwards
 14,994  9,949 
Other
 1,294  679 
Subtotal 58,178  42,812 
Less: Valuation allowance (29,135) (18,777)
Total deferred tax assets 29,043  24,035 
Deferred tax liabilities:
Property and equipment
 (4,282) (754)
Intangible assets (41) (5,069)
Right-of-use assets
 (24,475) (18,066)
Other
 (128) — 
Asset retirement obligations
 (109) (99)
Total deferred tax liabilities (29,035) (23,988)
Net deferred tax assets
 $ 8  $ 47 
The amount of income taxes paid (net of refunds received) were as follows:
Year Ended December 31,
2025
Federal
 $ 1,125 
State and local
California
 315 
New York State
 279 
New York City
 152 
Texas
 150 
Other
 139 
New Zealand
 394 
Total income taxes paid (net of refunds received)
 $ 2,554 
The Company had gross deferred tax assets of $58.2 million and $42.8 million and gross deferred tax liabilities of $29.0 million and $24.0 million at December 31, 2025 and 2024, 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 $29.1 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, 2025, the valuation allowance increased by $10.4 million, primarily due to increased net operating losses.
As of December 31, 2025, the Company had a $23.6 million Australian net operating loss carryforward and a $15.4 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, 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. 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, 2025, there are no unremitted earnings from these operations.
As of December 31, 2025 the Company has recorded unrecognized tax benefits related to certain state income tax returns that have not yet been filed for prior tax years. These unrecognized tax benefits primarily relate to the uncertainty associated with the Company’s filing positions and nexus determinations in various state jurisdictions. Management has evaluated these positions under the more-likely-than-not recognition threshold prescribed by ASC 740 and has concluded that certain tax benefits do not meet the recognition criteria. Accordingly, the Company has recorded a liability for unrecognized tax benefits within other noncurrent liabilities on the consolidated balance sheets as of December 31, 2025. Because certain state income tax returns have not been filed, the applicable tax years remain open and subject to examination until the statute of limitations expires following the filing of such returns. In general, the Company’s major state tax jurisdictions remain open for examination in jurisdictions where returns have not been filed beginning in tax year 2021. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2024, the Company had no uncertain tax positions.
The following table summarizes the Company’s uncertain tax positions:
Year Ended December 31,
2025
Gross unrecognized tax benefits at the beginning of the year $ — 
Increases related to tax positions taken during the current periods
 24 
Increases related to tax positions taken during the prior periods
 194 
Gross unrecognized tax benefits at the end of the year $ 218 
The Company is subject to taxation in the United States, Cayman Islands and Australia. For U.S. federal income tax purposes, 2022 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, 2021 and later tax years remain open for examination by the tax authorities under a four-year statute of limitations. For Australia, 2021 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.