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INCOME TAXES
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company has not recorded any tax provision or benefit for federal income taxes for the years ended December 31, 2023 and 2022. Current income taxes are based upon the year’s income taxable for federal and state tax reporting purposes. Deferred income taxes (benefits) are provided for certain income and expenses, which are recognized in different periods for tax and financial reporting purposes. Deferred tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the period in which the differences are expected to affect taxable income, and NOL and R&D tax credit carryforwards.
A reconciliation of the expected tax computed at the U.S. statutory federal income tax rate to the total benefit for income taxes for the years ended December 31, 2023 and 2022 is as follows:
Year Ended December 31,
20232022
Statutory federal income tax rate21.0 %21.0 %
State tax, net of federal benefit2.5 2.7 
Non-deductible stock compensation(0.4)(0.5)
Rate change(0.1)(1.1)
Other(0.5)— 
Change in valuation allowance(22.5)(22.1)
Income tax provision0.0 %0.0 %
Significant components of the Company’s deferred tax assets as of December 31, 2023 and 2022 were as follows (in thousands):
December 31,
20232022
Deferred tax assets:
Net operating loss$16,555 $13,125 
Capitalized R&D13,328 6,788 
Stock compensation1,849 675 
R&D credit1,350 1,381 
Intangible assets441 — 
Accruals and other temporary differences575 179 
Gross deferred tax assets34,098 22,148 
Valuation allowance(33,661)(22,118)
Total deferred tax assets437 30 
Deferred tax liabilities:
Embedded debt derivative liabilities(274)— 
Other(163)— 
Depreciation— (30)
Total deferred tax liabilities(437)(30)
Net deferred tax assets$— $— 
In assessing the realizability of deferred tax assets as of December 31, 2023 and 2022, management considered whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible or the net operating loss (“NOL”) carryforwards and R&D tax credit carryforwards will be used. The Company has determined that it is not more likely than not that its deferred tax assets will be realized. Accordingly, a valuation allowance for the full amount of the net deferred tax assets has been recorded as of December 31, 2023 and 2022. The change in the valuation allowance as of December 31, 2023 from December 31, 2022 is due to the pretax loss incurred for the year ended December 31, 2023.
As of December 31, 2023, the Company had approximately $67.2 million of NOL carryforwards available for federal tax purposes. As a result of the Tax Act of 2017, for U.S. income tax purposes, NOLs generated prior to December 31, 2017 can still be carried forward for up to 20 years, but NOLs generated after December 31, 2017 carryforward indefinitely, but are limited to 80% utilization against taxable income. Of the total federal NOLs of $67.2 million, $6.5 million will begin to expire on December 31, 2028 and $60.7 million will not expire.
As of December 31, 2023, the Company also had approximately $46.9 million of state NOL carryforwards. The state NOLs begin to expire on December 31, 2028.
As of December 31, 2023, the Company had approximately $1.4 million of R&D credit carryforwards available for federal tax purposes, which begin to expire on December 31, 2024.
Utilization of the NOL and R&D credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50% of the outstanding stock of a company by certain stockholders. The Company has not completed a formal analysis of the potential impact of Section 382 on its deferred tax assets as of December 31, 2023. Until this analysis has been completed, the Company has
not adjusted any of its deferred tax assets, including NOLs or R&D credits. The Company will reassess the amount of NOLs and credits subject to limitation under Section 382 when a study is complete. Due to the existence of the valuation allowance, future changes in the deferred tax assets related to these tax attributes will not impact the Company’s effective tax rate.
The Company is subject to U.S. federal and various state taxes. Generally, the tax years remain open for examination by the federal statute under a three-year statute of limitation; however, states generally keep their statutes open for four years. However, the Company’s tax years from 2004 and after are subject to examination by the United States and state taxing authorities due to the carry forward of unused NOLs and R&D credits.