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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The following table sets forth pretax book loss (in thousands):
| Year Ended December 31,
| 2023 |  | 2022
United States | $ | (4,357) |  |  | $ | (21,948) |
Foreign | — |  |  | — |
Total | $ | (4,357) |  |  | $ | (21,948) |
The following table sets forth income before taxes and the income tax expense for the years ended December 31, 2023 and 2022 (in thousands):
| Year Ended December 31,
| 2023 |  | 2022
Current: |  |  |
Federal | $ | — |  |  | $ | — |
Foreign | 15 |  |  | (4) |
State | 12 |  |  | (3) |
Total current | 27 |  |  | (7) |
Total deferred | — |  |  | — |
Income tax expense (benefit) | $ | 27 |  |  | $ | (7) |
Our effective tax rate differs from the statutory federal tax rate for the years ended December 31, 2023 and 2022 as shown in the following table (in thousands):
| Year Ended December 31,
| 2023 |  | 2022
U.S. federal income taxes at the statutory rate | $ | (915) |  |  | $ | (4,609) |
Goodwill impairment | — |  |  | 1,547 |
State taxes, net of federal effects | (58) |  |  | (375) |
U.S. Federal and state NOL carryforward adjustment for expired NOLs | 613 |  |  | 76 |
Stock compensation plan adjustments | 385 |  |  | 16 |
Change in valuation allowance | (112) |  |  | 3,273 |
Other | 114 |  |  | 65 |
Income tax expense (benefit) | $ | 27 |  |  | $ | (7) |
The tax effect of the temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2023 and 2022 is presented below (in thousands):
| Year Ended December 31,
| 2023 |  | 2022
Deferred tax assets (liabilities): |  |  |
Tax benefit of operating loss carry forward - Federal | $ | 29,416 |  |  | $ | 28,459 |
Tax benefit of operating loss carry forward - State | 5,965 |  |  | 6,429 |
Accrued expenses | 131 |  |  | 147 |
Deferred revenue | 36 |  |  | 129 |
Stock-based compensation | 56 |  |  | 420 |
Fixed assets | 4 |  |  | 116 |
Goodwill | — |  |  | 28 |
Inventory | 156 |  |  | 106 |
Intangible amortization | 32 |  |  | (80) |
Section 174 research and experimentation | — |  |  | 409 |
Section 163(j) interest expense | 314 |  |  | — |
R&D credit | 2,154 |  |  | 2,154 |
Texas margin tax temporary credit | 55 |  |  | 74 |
Other | 61 |  |  | 101 |
Total deferred tax asset, net of deferred tax liabilities | 38,380 |  |  | 38,492 |
Valuation allowance | (38,380) |  |  | (38,492) |
Net deferred tax asset | $ | — |  |  | $ | — |
The ending balances of the deferred tax asset have been fully reserved, reflecting the uncertainties as to realizability evidenced by the Company’s historical results. The change in valuation allowance for the year ended December 31, 2023 is a decrease of $112,000. The change in valuation allowance for the year ended December 31, 2022 was an increase of $3,273,000. We and our subsidiary file federal and state tax returns on a consolidated basis. On October 1, 2019 Oblong, Inc. acquired the stock of Oblong Industries Inc. that resulted in Oblong Industries Inc.'s shareholders owning 75% of Oblong, Inc. Therefore, an “ownership change” occurred on this date (as defined under Section 382 of the Internal Revenue Code of 1986, as amended), which places an annual limitation on the utilization of the net operating loss (“NOL”) carryforwards accumulated before the ownership change. If additional ownership changes occur in the future, the use of the net operating loss carryforwards could be subject to further limitation. As a result of this annual limitation and the limited carryforward life of the accumulated NOLs, we determined that the 2019 ownership change resulted in the permanent loss of approximately $30,880,000 of tax NOL carryforwards. At December 31, 2022, we had federal net operating loss carryforwards of $135,517,000 available to offset future federal taxable income, after Section 382 limitation considerations. At December 31, 2023, we had federal net operating loss carryforwards of $140,075,000 available to offset future federal taxable income, after section 382 limitation considerations. Of this amount, $75,350,000 will expire in various amounts from 2024 through 2037. As of December 31, 2023 and 2022, the Company also has various state net operating loss carryforwards of $98,844,000 and $97,531,000, respectively. The determination of the state net operating loss carryforwards is dependent upon apportionment percentages and state laws that can change, from year to year and impact the amount of such carryforwards. The Company has Research and Development credits of $2,154,000 at December 31, 2023 and 2022. The Research and Development credit begins to expire at the end of 2026. The issuance of the securities in the March 31, 2023 private placement significantly diluted the ownership interest of the existing holders of our common stock. The Company is reviewing if a Section 382 ownership change occurred as a result of the private placement stock issuance. If a Section 382 ownership change did occur, this event would further limit the utilization of, and the timing of utilization, of the federal and state net operating loss carryforwards above. There were no significant matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return, in accordance with ASC Topic 740 “Income Taxes” (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements, that have been recorded on the Company’s Consolidated Financial Statements for the years ended December 31, 2023 and 2022. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months. Additionally, ASC 740 provides guidance on the recognition of interest and penalties related to unrecognized tax benefits. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2023 and 2022. The Internal Revenue Service may generally access additional income tax for the most recent three years. This would generally prevent the Internal Revenue Service from opening an examination for years ended on or before December 31, 2020. However, there are exceptions that can extend the statute of limitations to six years, and in some cases, prevent the statute of limitations from ever expiring.

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