Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.24.1
INCOME TAXES
 12 Months Ended
Dec. 31, 2023
INCOME TAXES  
INCOME TAXES

NOTE 18. INCOME TAXES

The components of the income tax provision are as follows:

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​

​

​

​

​

​

​

​

​

Years Ended December 31, 

($’s in thousands)

    

2023

    

2022

Current:

​

​

  

​

​

  

Federal

​

$

34

​

$

—

State

​

 

187

​

 

63

Total current

​

 

221

​

 

63

​

​

​

​

​

​

​

Deferred:

​

 

  

​

 

  

Federal

​

 

(753)

​

 

(6,701)

State

​

 

(94)

​

 

(1,737)

Total deferred

​

 

(847)

​

 

(8,438)

Valuation allowance

​

​

847

​

​

8,438

Total income tax expense

​

$

221

​

$

63

​

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

The significant components of the Company’s deferred tax assets consisted of the following:

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​

​

​

​

​

​

​

​

​

December 31, 

($’s in thousands)

    

2023

    

2022

Deferred tax assets:

​

​

  

​

​

  

Net operating loss carryforwards

​

$

4,376

​

$

6,553

Amortization of license fees

​

 

5,603

​

 

4,951

R&D capitalization

​

 

3,312

​

 

2,462

Stock compensation

​

 

1,081

​

 

1,293

Lease liability

​

​

27

​

​

48

Reserve on sales return, discount and bad debt

​

 

3,566

​

 

2,988

Accruals and reserves

​

 

723

​

 

574

Tax credits

​

 

1,491

​

 

1,152

Business interest expense deduction limit

​

 

—

​

 

322

State taxes

​

 

—

​

 

13

Total deferred tax assets

​

 

20,179

​

 

20,356

Less: valuation allowance

​

​

(20,154)

​

​

(19,307)

Deferred tax assets, net

​

$

25

​

$

1,049

​

​

​

​

​

​

​

Deferred tax liability:

​

​

​

​

​

​

Section 481(a) adjustment on reserve on sales return, discount and bad debt

​

​

—

​

​

(1,001)

Right-of-use asset

​

​

(25)

​

​

(48)

Deferred tax assets, net

​

$

—

​

$

—

​

A reconciliation of the statutory tax rates and the effective tax rates is as follows:

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​

​

​

​

​

​

​

​

Years Ended December 31, 

 

​

    

2023

    

2022

 

Percentage of pre-tax income:

​

  

​

  

​

U.S. federal statutory income tax rate

 

21

%  

21

%

State taxes, net of federal benefit

 

(1)

%  

4

%

Non-deductible items

 

(4)

%  

(0)

%

Provision to return

 

(1)

%  

0

%

State tax adjustments

 

(1)

%  

0

%

Change in valuation allowance

​

(23)

%  

(28)

%

Share-based compensation

​

(10)

%  

0

%  

Tax credits

 

13

%  

3

%

Effective income tax rate

 

(6)

%  

(0)

%

​

As required by ASC 740, the Company has evaluated the evidence bearing upon the realizability of its deferred tax assets. Based on the weight of available evidence, both positive and negative, the Company has determined that it is more likely than not that it will not realize the benefits of these assets. Accordingly, the Company recorded a valuation allowance of $20.2 million at December 31, 2023. The valuation allowance increased by $0.8 million during the year ended December 31, 2023, primarily as a result of the increase in NOL carryforwards generated in the current period.

As of December 31, 2023, the Company had federal and state NOL carryforwards of approximately $15.6 million and $22.7 million, respectively. The Federal NOL carryforwards do not expire, but $19.5 million of the state NOL carryforwards expire if not utilized prior to 2042.

Utilization of the U.S. federal and state NOL carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax liabilities, respectively. The Company has performed calculations to support that its NOL carryovers are subject to limitations under section 382 (“382 Limitations”). Based on the analysis of the NOL carryovers subject to the 382 Limitations, the Company has concluded that the 382 Limitations would not prevent the Company from utilizing all of its NOL carryovers prior to expiration.

The Company is subject to U.S. federal and state taxes. As of December 31, 2023, the earliest federal tax year open for the assessment of income taxes under the applicable statutes of limitations is its 2020 tax year. The expiration of the statute of limitations related to the various state income and franchise tax returns varies by state.