Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes [Abstract]

Income Taxes

15. Income Taxes

Income tax expense consists of the following (in thousands):

	Year Ended December 31,
	2022		2021
Current:
Federal	$	—	$	—
State		23		22
		23		22
Deferred:
Federal		23		23
State		17		(11	)
		40		12
Income tax expense	$	63	$	34

Deferred tax assets and liabilities are determined based on the differences between the consolidated financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which differences are expected to reverse.

Significant components of the Company’s deferred tax liability for federal income taxes consisted of the following (in thousands):

	December 31,
Deferred tax assets (liabilities)	2022			2021
Net operating loss carryforwards	$	45,077		$	46,596
Intangible assets		1,697			1,039
Inventory		57			26
Reserves and accrued expenses		1,431			1,230
Property and equipment		1,111			441
Stock-based compensation		548			458
Operating lease right-of-use assets		(242	)		(159	)
Goodwill		(1,095	)		(950	)
Operating lease liabilities		240			177
481(a) adjustment		(333	)		(667	)
Interest expense limitation carryover		208			—
Less: valuation allowance		(49,005	)		(48,457	)
Net deferred tax liability	$	(306	)	$	(266	)

In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to allow for the realization of deferred tax assets. Based upon the historical and anticipated future losses, management has determined that the deferred tax assets do not meet the more likely than not threshold for realizability. Accordingly, a nearly full valuation allowance has been recorded against the Company’s deferred tax assets as of December 31, 2022 and 2021. The valuation allowance increased by $0.5 million and $0.1 million during the years ended December 31, 2022 and 2021, respectively. The Company does not have unrecognized tax benefits as of December 31, 2022 or 2021. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

The Company had net operating loss (“NOL”) carryforwards for federal and state income tax purposes as follows (in thousands):

	December 31,
	2022		2021
Federal	$	198,144	$	204,314
State	$	60,784	$	60,654

The NOL carryforwards generated prior to 2018 began to expire for federal income tax purposes and begin expiring in 2030 for state income tax purposes. Federal and many state NOLs generated in 2018 and into the future now have an indefinite life.

The NOL carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. 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. To date, the Company has not performed an analysis to determine whether or not ownership changes have occurred since inception.

A reconciliation of income tax expense at the statutory federal income tax rate and income taxes as reflected in the consolidated financial statements is as follows:

	December 31,
	2022			2021
Federal tax expense at statutory rate		21.00	%		21.00	%
State tax, net of federal benefit		(0.58	)%		(0.33	)%
Permanent differences		(2.23	)%		8.90	%
Other difference and true ups		(11.20	)%		(25.27	)%
Change in valuation allowance		(8.14	)%		(5.57	)%
Tax provision		(1.15	)%		(1.27	)%

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (“IRA”). The IRA contains certain tax measures, including a corporate alternative minimum tax of 15% on some large corporations and an excise tax of 1% on corporate stock repurchases. The Company is currently evaluating the various provisions of the IRA and does not anticipate a material impact on its consolidated financial statements.