Income Taxes

6 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

For the quarters ended September 30, 2023 and 2022, the Company recorded an income tax provision of approximately $0.5 million and an income tax provision of approximately $1.0 million, respectively, and for the six months ended September 30, 2023 and 2022 the Company recorded an income tax provision of approximately $0.3 million and an income tax provision of approximately $2.1 million, respectively. The decrease in the income tax provision for the three and six months ended September 30, 2023 is related to the utilization of net operating losses available related to the acquisition of PetCareRx. The effective tax rate for the quarter ended September 30, 2023 was approximately 118.3%, compared to approximately 28.6% for the quarter ended September 30, 2022, and the effective tax rate for the six months ended September 30, 2023 was approximately (54.6)% compared to approximately 27.8%. The increase to the effective tax rate for the three months ended September 30, 2023 can be attributed to net operating losses offsetting taxable income, partially offset by an increase in state income tax. The decrease to the effective tax rate for the six months ended September 30, 2023 can be attributed to non-deductible items and an increase in state income tax.

Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change”, the corporation’s ability to use its pre-change net operating loss and tax credit carryforwards to offset its post-change income and tax liabilities may be limited. Generally, an ownership change occurs when the equity ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over

their lowest ownership percentage in a testing period (typically three years). On April 3, 2023, 100% of the issued and outstanding stock of PetCareRx was acquired by the Company. The merger triggered an ownership change of PetCareRx within the meaning of Section 382.

As a result of the acquisition, the Company performed a Section 382 analysis to determine if the net operating losses carried forward will have a utilization limitation. Any limitation may result in the expiration of a portion of the federal net operating loss carryforward before utilization, which would reduce the Company's gross deferred tax assets. As of April 3, 2023, and prior to the acquisition, PetCareRx had approximately $96.0 million of net operating losses and $1.9 million of disallowed interest expense. The results of the preliminary Section 382 analysis determined the net operating losses and disallowed interest expense in total, would be limited and reduced to approximately $33.0 million.