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

Note 15. Income Taxes

The components of loss before income taxes are as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

Domestic

 

$

(13,978

)

 

$

(15,598

)

Foreign

 

 

—

 

 

 

—

 

Loss before income taxes

 

$

(13,978

)

 

$

(15,598

)

 

The total income tax provision for the years ended December 31, 2023 and 2022 was expense of $8,000 and $14,000, respectively, and is comprised of current state taxes and foreign taxes withheld by governmental agencies outside of the United States, as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

Current:

 

 

 

 

 

 

Federal

 

$

—

 

 

$

—

 

State

 

 

(7

)

 

 

(13

)

Foreign

 

 

(1

)

 

 

(1

)

Total current tax (expense)

 

 

(8

)

 

 

(14

)

Deferred:

 

 

 

 

 

 

Federal

 

 

—

 

 

 

—

 

State

 

 

—

 

 

 

—

 

Foreign

 

 

—

 

 

 

—

 

Total deferred tax (expense)

 

 

—

 

 

 

—

 

Total tax (expense)

 

$

(8

)

 

$

(14

)

The Company operates in only one federal jurisdiction, the United States. The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

 

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

Expected income tax provision at the federal statutory rate

 

 

21.0

%

 

 

21.0

%

State taxes, net of federal benefits

 

 

5.0

%

 

 

16.0

%

Change in valuation allowance

 

 

(26.6

)%

 

 

(40.9

)%

Derivative liability

 

 

9.8

%

 

 

4.1

%

PIPE Transactions

 

 

(9.8

)%

 

 

—

 

Contingent Consideration Release

 

 

—

 

 

 

0.1

%

Non-controlling interest

 

 

—

 

 

 

(0.3

)%

Other

 

 

0.5

%

 

 

(0.1

)%

Income tax provision

 

 

(0.1

)%

 

 

(0.1

)%

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, net operating loss carryforwards (“NOLs”) and other tax credits. Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

 

 

 

As of December 31,

 

 

 

2023

 

 

2022

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$

23,160

 

 

$

19,654

 

Stock-based compensation

 

 

4,654

 

 

 

4,541

 

Accrued payroll and benefits

 

 

342

 

 

 

296

 

Research and development credits

 

 

16

 

 

 

16

 

Fixed asset basis difference

 

 

87

 

 

 

54

 

Inventory reserve

 

 

102

 

 

 

445

 

Charitable contributions

 

 

3

 

 

 

2

 

Income from partnerships

 

 

231

 

 

 

97

 

Lease liability

 

 

261

 

 

 

531

 

Other accounts receivable reserve

 

 

147

 

 

 

65

 

Amortized intangibles

 

 

755

 

 

 

819

 

Goodwill

 

 

358

 

 

 

393

 

Section 174 Capitalization

 

 

583

 

 

 

340

 

Total deferred tax assets

 

 

30,699

 

 

 

27,253

 

Deferred tax liabilities:

 

 

 

 

 

 

Right of use asset

 

 

(205

)

 

 

(486

)

Total deferred tax liabilities

 

 

(205

)

 

 

(486

)

Less valuation allowance

 

 

(30,494

)

 

 

(26,767

)

Net deferred tax assets

 

$

—

 

 

$

—

 

Realization of the deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which are uncertain. Accordingly, the net deferred tax assets have been offset by a valuation allowance. The net valuation allowance increased by $3.7 million and $6.3 million during the years ended December 31, 2023 and 2022, respectively.

At December 31, 2023, the Company had federal and state NOLs aggregating approximately $94.1 million and $60.4 million, respectively. At December 31, 2023, the utilization of a portion of the federal NOLs is subject to an annual limitation under Section 382 of the Internal Revenue Code (IRC). Of the $230.5 million of federal NOLs available, approximately $136.4 million are expected to expire unutilized due to ownership changes as defined in IRC Section 382. If not utilized, the federal and state NOLs will begin to expire in 2024. IRC Section 382 may also limit NOLs generated after 2022 and in future years.

The Company evaluates deferred tax assets, including the benefit from NOLs, to determine if a valuation allowance is required. Such evaluation is based on consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative losses; forecasts of future profitability; the length of statutory carryforward periods; the Company’s experience with operating losses; and tax-planning alternatives. The significant piece of objective negative evidence evaluated was the cumulative loss incurred through the year ended December 31, 2023. Given this evidence and the expectation to incur operating losses in the foreseeable future, a full valuation allowance has been recorded against the net deferred tax asset. The Company will continue to maintain a full valuation allowance against the entire amount of its net deferred tax asset, until such time as the Company has determined that the weight of the objectively verifiable positive evidence exceeds that of the negative evidence. Although the Company has established a full valuation allowance on its net deferred tax asset, for Federal tax losses before 2018 and for all state tax losses, it has not forfeited the right to carryforward tax losses up to 20 years and apply such tax losses against taxable income in such years, thereby reducing its future tax obligations. Federal tax losses generated in 2018 and later do not expire. The Company is

subject to taxation in the United States and various state jurisdictions. As of December 31, 2023, the Company’s tax years for 2004 through 2022 are generally subject to examination by the tax authorities. The years are open back to 2004 to the extent the NOLs being carried forward were generated then.

The Company had the following unrecognized tax benefits (in thousands), none of which, if recognized, would impact the Company’s effective tax rate:

 

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

Unrecognized tax benefit beginning balance

 

$

16

 

 

$

17

 

Increases for tax positions taken in prior years

 

 

—

 

 

 

—

 

Decreases for tax positions taken in prior years

 

 

—

 

 

 

(1

)

Increases for tax positions taken in current years

 

 

—

 

 

 

—

 

Settlements

 

 

—

 

 

 

—

 

Unrecognized tax benefit ending balance

 

$

16

 

 

$

16

 

The Company does not anticipate its total unrecognized tax benefits as of December 31, 2023 will significantly change due to settlement of examination or the expiration of statute of limitations during the next 12 months. The Company is currently unaware of any uncertain tax positions that could result in significant additional payments, accruals or other material deviation in this estimate over the next 12 months.

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in the provision for income taxes. As of December 31, 2023, the Company has not recognized any interest and penalties related to uncertain tax positions.

In February 2023, the Company received notification from the Internal Revenue Service that our Archipelago joint venture was selected for audit for the 2021 tax year. The Company received a preliminary summary of examination changes during November 2023, is currently awaiting the Notice of Proposed Partnership Adjustment, and plans to accept the adjustments. Accordingly, the Company has adjusted the tax disclosures to capture the anticipated impact of the proposed adjustments.

The Company is currently not under audit for state purposes.