Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 18 Income Taxes

The components of income tax (benefit) expense for the years ended December 31, 2023, and 2022 were as follows (dollars in thousands):

	2023		2022
Current:
Federal	$	-	$	(6	)
State		120		(61	)
Total current		120		(67	)
Deferred:
Federal		-		-
State		-		-
Total deferred		-		-
Provision for (benefit from) income taxes	$	120	$	(67	)

A reconciliation between the Company’s federal statutory tax rate and its effective tax rate for the years ended December 31, 2023 and 2022 is as follows:

	2023			2022
Federal statutory tax rate		21.0	%		21.0	%
State taxes, net of federal benefit		23.3	%		1.3	%
Non-deductible excess compensation		-2.4	%		0.0	%
Warrant liability		0.1	%		2.3	%
Earnout liability		0.0	%		1.6	%
Stock-based compensation		-9.1	%		-4.7	%
Other		-1.0	%		-2.0	%
Research and development tax credit - federal		5.6	%		1.7	%
Return to provision		3.9	%		0.4	%
Change in valuation allowance		-41.6	%		-21.5	%
Effective tax rate		-0.2	%		0.1	%

The major components of the Company’s deferred tax assets and liabilities as of December 31, 2023 and 2022, consists of the following (dollars in thousands):

	2023			2022
Deferred tax assets:
Net operating loss carryforward	$	32,616		$	22,858
Allowance for credit losses		5,839			5,911
Research and development tax credit		9,453			5,410
Accrued expenses		1,777			2,726
Accrued compensation		891			282
Lease liability		242			198
Stock-based compensation		926			1,535
Excess interest expense carryforward		3,304			1,806
Section 174 R&E expenditures		11,664			7,411
Other		1,863			663
Total deferred tax assets		68,575			48,800
Deferred tax liabilities:
Property and equipment		(120	)		(101	)
Right of use asset		(222	)		(177	)
Other		(716	)		(491	)
Total deferred tax liabilities		(1,058	)		(769	)
Total net deferred tax assets before valuation allowance		67,517			48,031
Less: valuation allowance		(67,517	)		(48,031	)
Total net deferred taxes	$	-		$	-

As of December 31, 2023, the Company had $106.8 million of federal and $144.3 million of combined state net operating loss (“NOL”) carryforwards available to offset future taxable income. The federal NOLs do not expire;

however, they are subject to a utilization limit of 80% of taxable income in any given year. The State NOLs begin to expire in 2031, except for $20.9 million of state NOLs that do not expire. Internal Revenue Code Section 382 imposes limitations on the utilization of NOLs in the event of certain changes in ownership of the Company. The Company has not yet completed a comprehensive analysis of its past ownership changes. Depending upon the degree of those past ownership changes, and any future ownership changes, annual limits may impair the Company’s ability to utilize NOLs and could cause federal and state income taxes to be due sooner than if no such limitations applied.

The realization of deferred tax assets is dependent upon future sources of taxable income. Available positive and negative evidence is considered in making this determination. Due to a history of losses and uncertainty as to future taxable income, realization of the deferred tax assets is limited to the anticipated reversal of deferred tax liabilities. Management determined that there were insufficient federal and state deferred tax liabilities to offset all of the federal and state deferred tax assets at December 31, 2023 and 2022. Therefore, management believes it is more-likely-than-not that the net federal and state deferred assets will not be fully realized and has recorded valuation allowances in the amounts of $67.5 million and $48.0 million, as of December 31, 2023 and 2022, respectively.

A reconciliation of the Company’s gross unrecognized tax benefits as of December 31, 2023 and 2022 is as follows (dollars in thousands):

	2023		2022
Balance at beginning of year	$	849	$	456
Increases to prior positions		-		-
Decreases to prior positions		-		-
Increases for current year positions		476		393
Balance at end of year	$	1,325	$	849

As of December 31, 2023, the Company had $1.3 million of gross unrecognized tax benefits related to state income taxes and federal and state R&D tax credits. The unrecognized tax benefits of $0.1 million as of December 31, 2023, would, if recognized, affect the effective tax rate. Although it is possible that the amount of unrecognized tax benefits with respect to the uncertain tax positions will increase or decrease in the next 12 months, the Company does not expect material changes.

The Company recognized insignificant amounts of interest expense as a component of income tax expense during the years ended December 31, 2023 and 2022. The income tax related accrued interest amounts were also insignificant as of December 31, 2023 and 2022, respectively.

On August 16, 2022, the President signed into law the Inflation Reduction Act of 2022 which contained provisions effective January 1, 2023, including a 15% corporate minimum tax and a 1% excise tax on stock buybacks, both of which we expect to be immaterial to our financial results, financial position and cash flows.

The Company is subject to examination by taxing authorities in the jurisdictions in which it files tax returns, including federal, California, and various other state jurisdictions. The federal statute of limitations remains open for the tax periods December 31, 2020 and thereafter. The statute of limitations for California and various other state jurisdictions remains open for the tax periods December 31, 2019 and thereafter.