Income Taxes

12 Months Ended

May 31, 2024

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The components of loss before income tax benefit are as follows:

	Year ended May 31,
(in thousands)	2024		2023		2022
Loss before tax expense:
U.S.	$	(177,314)	$	(45,240)	$	(28,495)
Non-U.S.	(14,324)		(9,197)		(1,454)
	$	(191,638)	$	(54,437)	$	(29,949)

Income tax benefit is comprised of the following:

	Year ended May 31,
(in thousands)	2024		2023		2022
Current
U.S.	318		129		120
Non U.S.	361		187		186
	679		316		306
Deferred
U.S.	(7,039)		(207)		(3,415)
Non U.S.	(929)		(2,104)		(293)
	(7,968)		(2,311)		(3,708)
Income tax benefit	$	(7,289)	$	(1,995)	$	(3,402)

Temporary differences that give rise to deferred tax assets and liabilities are summarized as follows:

(in thousands)	May 31, 2024		May 31, 2023
Deferred tax assets
Net operating loss carryforward	$	28,243	$	40,460
Stock-based compensation	3,796		4,263
Federal and state R&D tax credit carryforward	7,777		7,311
Inventories	762		724
Expenses incurred not currently deductible	15,694		6,986
Accrued liabilities	39		78
Gross deferred tax asset	56,311		59,822
Deferred tax liabilities
Depreciation and amortization	8,443		46,828
	8,443		46,828
Valuation allowance	(52,680)		(25,759)
Net deferred tax liability	$	(4,812)	$	(12,765)

The net deferred tax liability of $4.9 million as of May 31, 2024 relates to the stock acquisition of Eximo Medical Ltd. primarily related to book intangibles partially offset by tax net operating losses and capitalized R&D expenditures. The net deferred tax liability in the U.S. as of May 31, 2023 principally relates to tax amortization of intangibles that have an indefinite reversal period for book purposes, also known as a “naked credit deferred tax liability”, that cannot be considered as a source of income to recover the deferred tax asset. In addition, included in the net deferred tax liability as of May 31, 2023 is a net deferred tax liability of $5.8 million that was related to the stock acquisition of Eximo Medical Ltd. primarily related to book intangibles partially offset by tax net operating losses and capitalized R&D expenditures.

The Company's U.S. Federal net operating loss carryforwards as of May 31, 2024 after considering IRC Section 382 limitations are $111.0 million. The expiration of the Federal net operating loss carryforwards are as follows: $37.1 million between 2030 and 2032, and $73.9 million indefinitely.

The Company's state net operating loss carryforwards as of May 31, 2024 after considering remaining IRC Section 382 limitations are $14.4 million which expire in various years from 2029 to 2043. The Company has Israel tax net operating losses of $17.2 million that can be carried forward indefinitely.

Beginning in 2018, except for the Global Intangible Low-Taxed Income, the Company will no longer record United States federal income tax on its share of the income of its foreign subsidiaries, nor will it record a benefit for foreign tax credits related to that income. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to withholding taxes payable, where applicable, to foreign countries, but would have no further federal income tax liability. The Company intends to indefinitely reinvest the unremitted foreign earnings of all other subsidiaries as of May 31, 2024, as well as all subsequent earnings generated by all of our foreign subsidiaries. Determining the amount of unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practical.

The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighted the evidence based on its objectivity.

Based on the review of all available evidence, the Company determined that it has not yet attained a sustained level of profitability and the objectively verifiable negative evidence outweighed the positive evidence. As a result of the full impairment of Goodwill and the reversal of the naked credit deferred tax liability sourced income, the Company has recorded a full valuation allowance on its US net deferred tax assets as of May 31, 2024. The Company will continue to assess the level of the valuation allowance required. If sufficient positive evidence exists in future periods to support a release of some or all of the valuation allowance, such a release would likely have a material impact on the Company’s results of operations.

The Company's consolidated income tax expense has differed from the amount that would be provided by applying the U.S. Federal statutory income tax rate to the Company's income before income taxes for the following reasons:

	Year ended May 31,
(in thousands)	2024		2023		2022
Income tax benefit at federal statutory tax rate of 21.0%, 21.0% and 21.0%, respectively	$	(40,244)	$	(11,432)	$	(6,289)
State income taxes, net of Federal tax benefit	(3,016)		(353)		(536)
Impact of Non-U.S. operations	2,440		14		199
Research and development tax credit	(907)		(991)		395
Meals and entertainment	244		258		179
Goodwill impairment	4,867		3,055		—
Non-deductible executive compensation	201		366		686
Change in valuation allowance	26,921		5,556		3,168
Stock based compensation	1,357		505		(1,616)
Other	848		1,027		412
Income tax benefit	$	(7,289)	$	(1,995)	$	(3,402)

The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits:

	Year ended May 31,
(in thousands)	2024		2023		2022
Unrecognized tax benefits balance at June 1	$	464	$	464	$	464
Decrease in gross amounts of tax positions related to prior years due to U.S. tax reform	—		—		—
Decrease due to lapse in statute of limitations	(464)		—		—
Unrecognized tax benefits balance at May 31	$	—	$	464	$	464

The table above includes unrecognized tax benefits associated with the calculation of limitations placed on the utilization of tax attributes related to an acquired company.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. There are no accrued interest and penalties recognized in the Consolidated Balance Sheets as of May 31, 2024 and May 31, 2023.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world. Fiscal years 2021 through 2023 remain open to examination by the various tax authorities.

The Company does not anticipate that the amount of unrecognized tax benefits will significantly change in the next twelve months.