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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

Note 5: Income Taxes

The components of loss before provision for income taxes consist of the following (in thousands):

 

 

Years Ended December 31,

 

(In Thousands)

 

2022

 

 

2023

 

United States

 

$

(7,525

)

 

$

(9,829

)

Foreign

 

 

(536

)

 

 

13

 

Loss before provision for income taxes

 

$

(8,061

)

 

$

(9,816

)

 

The provision for income taxes consists of the following (in thousands):

 

 

Years Ended December 31,

 

(In Thousands)

 

2022

 

 

2023

 

Current federal provision

 

 

 

 

 

 

State

 

$

58

 

 

$

78

 

Foreign

 

 

39

 

 

 

—

 

Deferred provision (benefit)

 

 

 

 

 

 

Federal

 

 

67

 

 

 

25

 

State

 

 

20

 

 

 

(9

)

Total income tax expense

 

$

184

 

 

$

94

 

 

 

The Company’s income tax expense differed from the amounts computed by applying the U.S. federal statutory rate to loss before provision for income taxes as a result of the following:

 

 

Years Ended December 31,

 

(In Thousands)

 

2022

 

 

2023

 

.

 

 

 

 

 

 

Income tax benefit at U.S. statutory rate

 

$

(1,693

)

 

$

(2,061

)

State taxes, net of valuation allowance

 

 

79

 

 

 

(339

)

Foreign tax differential

 

 

(150

)

 

 

3

 

Non-deductible transaction costs

 

 

16

 

 

 

(29

)

Stock-based compensation (1)

 

 

190

 

 

 

101

 

Gain on CARES Act loan

 

 

32

 

 

 

—

 

Valuation allowance

 

 

1,815

 

 

 

2,307

 

Tax credits

 

 

(237

)

 

 

(282

)

Other expenses

 

 

132

 

 

 

394

 

Total income tax expense

 

$

184

 

 

$

94

 

(1) Includes non-deductible stock-based compensation and excess tax benefits and shortfalls from stock-based compensation.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below and reflects the 21% U.S. federal statutory rate for 2022 and 2023 (in thousands):

 

 

Years Ended December 31,

 

(In Thousands)

 

2022

 

 

2023

 

Deferred tax assets:

 

 

 

 

 

 

Accrued liabilities not currently deductible

 

$

434

 

 

$

559

 

Intangible assets- excess of financial statement
   over tax amortization

 

 

3,341

 

 

 

2,096

 

Stock-based compensation

 

 

675

 

 

 

741

 

Federal net operating and capital losses

 

 

35,724

 

 

 

42,774

 

State, local and foreign net operating and capital loss carryforwards

 

 

5,326

 

 

 

—

 

Research & experimental tax and other credit carryforwards

 

 

5,421

 

 

 

5,612

 

Lease liability

 

 

426

 

 

 

416

 

Capitalized research and development

 

 

1,054

 

 

 

1,764

 

Other

 

 

460

 

 

 

337

 

Gross deferred tax assets

 

 

52,861

 

 

 

54,299

 

Valuation allowance

 

 

(51,795

)

 

 

(54,105

)

Net deferred tax assets

 

$

1,066

 

 

$

194

 

Deferred tax liabilities:

 

 

 

 

 

 

Intangible assets-excess of tax over financial statement amortization

 

 

(1,107

)

 

 

—

 

Right-of-use lease asset

 

 

(192

)

 

 

(404

)

Other

 

 

—

 

 

 

(39

)

Net deferred tax liabilities

 

$

(233

)

 

$

(249

)

As of December 31, 2023, the Company’s federal and state NOL carryforwards were approximately $175.9 million and $60.1 million, respectively. Of the total federal net operating losses reported, we have accumulated $44.2 million with an indefinite life as of December 31, 2023. The remaining federal net operating losses and the state net operating losses will begin to expire in 2027 and 2028, respectively, for income tax purposes. As of December 31, 2023, the Company’s federal research and development credit carryforwards were $4.8 million, which will start expiring in 2029.

The Tax Reform Act of 1986 limits the use of NOL and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. The Company is not aware that any such change has occurred related to these specific tax attributes, or that the utilization of the carryforwards is limited such that these NOL or tax credit carryforwards will likely never be utilized. Accordingly, the Company has included these federal NOL and tax credit carryforwards in its deferred tax assets (subject to valuation allowance).

The Company has recorded a deferred tax asset for stock-based compensation recorded on unexercised non-qualified stock options and certain restricted shares and restricted share units. The ultimate realization of this asset is dependent upon the fair value of the Company’s stock when the options are exercised and when restricted shares or restricted share units vest, and generation of sufficient taxable income to realize the benefit of the related tax deduction.

The Tax Cuts and Jobs Act contained a provision which requires the capitalization of Section 174 costs incurred in years beginning on or after January 1, 2022. Section 174 costs are expenditures which represent research and development costs that are incident to the development or improvement of a product, process, formula, invention, computer software, or technique. This provision changes the treatment of Section 174 costs such that the expenditures are no longer allowed as an immediate deduction but rather must be capitalized and amortized. We have included the impact of this provision, which results in a deferred tax asset of approximately $1.1 million as of December 31, 2022 and $1.8 million as of December 31, 2023.

At December 31, 2022 and 2023, the Company recorded a valuation allowance of $51.8 million, and $54.1 million, respectively, against its federal, state, city and foreign net deferred tax assets, as it believes it is more likely than not that these benefits will not be realized. The net change in the total valuation allowance for each of the years ended December 31, 2022 and 2023 was $(2.3) million and $2.2 million, respectively.

The Company regularly reviews deferred tax assets to assess whether it is more likely than not that the deferred tax assets will be realized and, if necessary, establishes a valuation allowance for portions of such assets to reduce the carrying value. In assessing whether it is more likely than not that the Company’s deferred tax assets will be realized, factors considered included: historical taxable income, historical trends related to customer usage rates, projected revenues and expenses, macroeconomic conditions, issues facing the industry, existing contracts, the Company’s ability to project future results and any appreciation of its other assets. The Company incurred taxable losses from 2016 through 2022. Based on the level of historical taxable losses and the uncertainty of projections for future taxable income over the periods for which the deferred tax assets are deductible, with the exception of certain insignificant foreign deferred tax assets, the Company concluded that it is not more likely than not that the gross deferred tax assets will be realized.

From time to time, various state, federal and other jurisdictional tax authorities undertake audits of the Company and its filings. In evaluating the exposure associated with various tax filing positions, the Company on occasion accrues charges for uncertain positions. Resolution of uncertain tax positions will impact the Company’s effective tax rate when settled. The Company does not have any significant interest or penalty accruals. The provision for income taxes includes the impact of contingency provisions and changes to contingencies that are considered appropriate. The following table summarizes activity related to tax contingencies from January 1, 2022 to December 31, 2023 which are recorded as an offset to deferred tax assets (in thousands):

(In Thousands)

 

 

 

Gross tax contingencies—January 1, 2022

 

$

1,382

 

Gross increases to current period tax positions

 

 

2

 

Gross decreases to tax positions associated with prior periods

 

 

—

 

Gross tax contingencies—December 31, 2022

 

 

1,384

 

Gross increases to current period tax positions

 

 

25

 

Gross tax contingencies—December 31, 2023

 

$

1,409

 

 

The Company files U.S. federal, certain U.S. states, and certain foreign tax returns. Generally, U.S. federal, U.S. state, and foreign tax returns filed for years after 2013 are within the statute of limitations and are under examination or may be subject to examination.