Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 5 — INCOME TAXES

The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Management evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered, and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is “more likely than not” that some or all of the deferred tax assets will not be realized. Management has determined that a full valuation allowance against the Company’s net deferred tax assets is appropriate.

The following table presents the current and deferred provision for income taxes for the years ended December 31 (in thousands):

	2023		2022			2021
Current:
Federal	$	—	$	—		$	—
State		15		40			17
Foreign		15		70			47
		30		110			64
Deferred:
Federal		—		—			—
State		—		—			—
Foreign		1		(1	)		1
		1		(1	)		1
	$	31	$	109		$	65

The provision for income taxes differs from the amount that would result from applying the federal statutory rate as follows for the years ended December 31:

	2023				2022				2021
Statutory regular federal income tax rate		(21.0	)	%		(21.0	)	%		(21.0	)	%
Change in valuation allowance		21.9		%		(92.8	)	%		34.2		%
State tax benefit (net of federal benefit)		(4.0	)	%		(3.9	)	%		(4.8	)	%
Research credits		—		%		—		%		(0.6	)	%
Foreign amounts with no tax benefit		0.1		%		0.1		%		—		%
Non-deductible expenses		2.4		%		0.6		%		(4.2	)	%
Effect of change in rate		(0.4	)	%		4.5		%		—		%
Expired net operating loss carryforwards		—		%		—		%		—		%
Net operating loss 382 write-offs		—		%		113.4		%		—		%
Effect of prior year true-ups		0.1		%		(1.2	)	%		(4.3	)	%
Other		1.0		%		0.6		%		1.1		%
Total		0.1		%		0.3		%		0.4		%

The components of the deferred income tax assets and liabilities as of December 31 (in thousands):

	2023			2022
Capitalized intangible assets for tax purposes	$	(38	)	$	(38	)
Reserves not currently deductible		1,353			2,409
Deferred revenue		65			106
Stock options		1,382			1,500
State taxes		5			6
Income tax credits		1,498			1,496
Inventory		1,179			1,024
Property and equipment		(591	)		186
Unrealized gain on foreign currency		(10	)		113
Disallowed interest		2,726			2,167
Lease liability		416			475
Capitalized research or experimental expenses		1,601			1,456
Net operating losses		27,476			21,665
Total deferred tax assets		37,062			32,565
Valuation allowance		(35,806	)		(31,235	)
Net deferred tax assets		1,256			1,330
Capitalized intangible assets		(668	)		(664	)
Right of use asset		(380	)		(442	)
Other		(167	)		(190	)
Total deferred tax liabilities		(1,215	)		(1,296	)
Net deferred tax assets	$	41		$	34

Based upon the Company’s operating losses incurred for each of the years ended December 31, 2023, 2022, and 2021 and the available evidence, the Company has established a valuation allowance against its net deferred tax assets in the amount of $35.8 million as of December 31, 2023. Management considered factors such as the Company’s earnings history, future projected earnings, and tax planning strategies. If sufficient evidence of the Company’s ability to generate sufficient future taxable income tax benefits becomes apparent, the valuation allowance may be reduced, thereby resulting in tax benefits in the statement of operations and additional paid-in-capital. Management evaluates the potential realization of the Company’s deferred tax assets and assesses the need for reducing the valuation allowance periodically.

As of December 31, 2023, the Company had net operating loss (“NOL”) carryforwards for federal and state purposes of approximately $110 million and $80 million, respectively. For NOLs generated before December 31, 2018, the carryforward period is 20 years while NOLs generated after December 31, 2018 can be carried forward indefinitely. All NOLs generated before December 31, 2018 will expire by 2038. The Company’s ability to utilize its net operating loss carryforwards, tax credits, and built-in items of deduction, including capitalized start-up costs and research and development costs, has been, and may continue to be substantially limited due to ownership changes. These ownership changes limit the amount of net operating loss carryforwards, credits and built-in items of deduction that can be utilized annually to offset future taxable income. In general, an ownership change, as defined in IRC Section 382, 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 or public groups. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. If limited, the related tax asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. The Company has established a valuation allowance as the realization of such deferred tax assets has not met the more likely than not threshold requirement. Due to the existence of the valuation allowance, further changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate.

For the year ended December 31, 2022, the Company completed an assessment of the available net operating loss and tax credit carryforwards under Section 382 and 383 and determined that the Company underwent three ownership changes during the period from 2000 to 2022 on (i) August 8, 2016, (ii) June 8, 2020 and (iii) January 20, 2021. As a result, net operating loss and tax credit carryforwards attributable to the pre-ownership changes are subject to substantial annual limitations under Section 382 and 383 of Code due to the ownership changes. This resulted in a reduction of available gross federal and state net operating loss carryforwards of approximately $123.3 million and $72.6 million, respectively. This also resulted in a reduction of federal tax R&D credit carryforwards of approximately $2 million related to the years ended December 31, 2021 and prior.

The Company is in process of completing an assessment of the available net operating loss and tax credit carryforwards as of December 31, 2023 to account for the ownership changes that occurred during the year. Upon finalization of the assessment, the Company will record adjustments to its NOL and credit carryforwards to the extent required. Considering the indefinite carryforward periods of its remaining NOLs and tax credits, it is not anticipated that there would be a material adjustment to its NOL and tax credit balance. Any reduction of such tax attributes would be offset by a reduction of a valuation allowance.

As of December 31, 2023, the Company had research and development tax credit carryforwards for state purposes of approximately $2.1 million which will carry forward indefinitely for state purposes.

The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):

Balance at January 1, 2021	$	509
Additions for tax positions related to the prior year		—
Lapse of statute of limitations		(159	)
Balance at January 1, 2022		350
Additions for tax positions related to the prior year		—
Lapse of statute of limitations		—
Reduction due to section 382 limitation		(131	)
Balance at January 1, 2023		219
Additions for tax positions related to the prior year		—
Lapse of statute of limitations		—
Balance at December 31, 2023	$	219

The Company does not expect to have any unrecognized tax benefits that, if recognized, would affect the effective tax rate. As of December 31, 2023 and 2022, the Company does not have liability for potential penalties or interest. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

The Company files U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2020 through 2023 tax years generally remain subject to examination by federal and most state tax authorities. In foreign jurisdictions, the 2020 through 2023 tax years remain subject to examination by their respective tax authorities.

The 2017 Act subjects a U.S, stockholder to current tax on global intangible low-taxed income (GILTI) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. We have elected to recognize the tax on GILTI as a period expense in the period the tax is incurred. There is no inclusion of income related to GILTI in 2023.