Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company is subject to U.S., Italy and India tax laws, regulations and policies. Changes to these laws or regulations may affect the Company’s tax liability, return on investments and business operations.

Earnings before income taxes

Net income (losses) before income taxes for the years ended December 31, 2023 and 2022 was as follows:

	For the years ended December 31,
	2023		2022
U.S.	$	(229,585)	$	(229,923)
Non-U.S.	110		161
Total income (loss) before income tax	$	(229,475)	$	(229,762)

Income expense (benefit)

Income tax expense (benefit) was as follows:

	For the years ended December 31,
	2023		2022
Current expense (benefit):
U.S. federal	$	—	$	—
U.S. state and local	—		—
Non-U.S.	31		51
Total current income tax (benefit) provision	$	31	$	51
Deferred expense (benefit):
U.S. federal	$	—	$	—
U.S. state and local	—		—
Non-U.S.	—		—
Total deferred income tax (benefit) provision	—		—
Total income tax (benefit) provision	$	31	$	51

The Company has a tax provision of $31 and $51 for the years ended December 31, 2023 and 2022, respectively, due to foreign taxable income and the generation of U.S. taxable losses offset by a valuation allowance on the deferred tax assets.

Reconciliation of U.S. Federal Statutory income tax rate to actual income tax rate

The reconciliation from the statutory U.S. federal income tax rate to the effective tax rate is as follows:

	For the years ended December 31,
	2023		2022
Income (loss) before income taxes	$	(229,475)	$	(229,762)
Statutory U.S. federal income tax (21%)	(48,190)		(48,250)
State and local income tax	330		(12,051)
Income taxed at rates other than statutory	8		17
Non-deductible convertible debt	8,420		(2,220)
Non-deductible warrant cost	(5)		(178)
Stock-based compensation	1,687		1,622
Non-deductible officers compensation	2,580		—
Valuation allowance	34,821		60,444
Other	380		667
Total income tax expense	$	31	$	51
Effective tax rate	—		—

The reported income tax provision differs from the amount computed by applying the statutory U.S. federal income tax rate of 21% to the income before income taxes primarily due to pretax losses in the U.S. for which no tax benefit has been provided, non-deductible convertible debt, as well as stock-based compensation.

Deferred Income Taxes

The Company records deferred income taxes to reflect the net tax effects of temporary differences, if any, between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. The components of deferred tax assets and liabilities at December 31, 2023 and 2022 were as follows:

	December 31,
	2023		2022
Deferred tax assets:
NOL carryforwards	$	152,380	$	121,142
Capital loss carryforwards	235		235
Tax credit carryforwards	65		65
Goodwill	6,735		7,427
Capitalized research & experimental costs	8,213		3,952
Stock-based compensation	3,819		4,819
Accruals and reserves	2,503		1,678
Organizational costs	124		140
Lease liability	1,309		1,413
Fixed assets	268		316
Inventory	977		663
Transaction costs	244		266
Deferred tax assets, gross	$	176,872	$	142,116
Valuation allowance	(175,680)		(140,858)
Total deferred tax assets, net	$	1,192	$	1,258
Deferred tax liabilities:
Right of use asset	(1,144)		(1,194)
Intangibles	(41)		(63)
Other	(7)		(1)
Deferred tax liabilities	(1,192)		(1,258)
Total deferred tax asset (liability)	$	—	$	—

The Tax Cuts & Jobs Act of 2017 ("TCJA") mandated that R&E costs incurred in tax years beginning after December 31, 2021 must be capitalized and amortized over five years if the research is performed in the United States and over 15 years if performed outside the United States. As of December 31, 2023 and December 31, 2022, the Company has capitalized and will amortize these costs over the required periods.

The Company maintains a valuation allowance where it is more-likely-than-not that all or a portion of a deferred tax asset may not be realized. Changes in the valuation allowance are included in the Company’s income tax provision in the period of change. In determining whether a valuation allowance is required, the Company evaluates factors such as prior earnings history, expected future earnings, reversal of existing taxable temporary differences, carry back and carry forward periods and tax planning strategies that could potentially enhance the likelihood of the realization of a deferred tax asset. The Company has determined that it is more-likely-than-not that it will not be able to utilize its U.S. deferred tax assets at December 31, 2023 and 2022 due to a history of cumulative losses. As such, the Company has a valuation allowance against its net deferred tax assets.

The valuation allowance increased by $34,822 between December 31, 2023 and 2022. The increase was primarily attributable to an increase in NOL carryforwards. At December 31, 2023, the valuation allowance is $175,680, of which $1,762 would be allocated to additional paid-in capital if released. The remaining valuation allowance of $173,918 would be released through continuing operations.

Net Operating Losses & Tax Credits

As of December 31, 2023 and 2022, the Company has federal research and development tax credits (“R&D credit”) of approximately $3,733 for both years, which begin to expire in varying amounts from 2031 – 2038, subject to the annual limitation described below. In addition, the Company has state R&D credits of approximately $65 for the years ended December 31, 2023 and 2022, which will expire in 2024.

The Company has NOL carryforwards for tax purposes and other deferred tax assets that are available to offset future taxable income, subject to the annual limitation described below.

As of December 31, 2023 and 2022, the Company has gross federal NOL carryforwards of approximately $638,507 and $485,351, respectively. As of December 31, 2023 and 2022, the Company has state NOL carryforwards of $228,333 and $235,679, respectively. Regarding the federal NOL for the year ended December 31, 2023, $89,051 begins to expire in varying amounts from 2032 through 2036, while $549,456 has an indefinite carryforward period. Regarding the state NOL carryforwards for the year ended December 31, 2023, $222,764 begins to expire in varying amounts from 2033 through 2043, while $5,569 has an indefinite carryforward period. The U.S. (federal and state) operating loss carryforwards and credits may be subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenue Code, and similar state provisions. In 2020, the Company determined that the merger transaction constitutes a change of ownership as defined under Internal Revenue Code Section 382 and Section 383. Based on management’s Section 382 Limitation Analysis, it is expected that all NOL carryforwards that existed as of the transaction date will be allowable under Section 382. Subsequent changes in ownership could have occurred through December 31, 2023, which could further severely limit the use of losses. Management believes such limitation will not have a material adverse effect on the financial statements as the Company is currently in a net loss position, and the deferred tax asset on the Company’s NOL carryforward is offset by a full valuation allowance. Management will further evaluate the impact, if any, on the allowable net operating loss carryforward. Based on management’s Section 383 Limitation Analysis, it is expected that as of December 31, 2023 and December 31, 2022, $3,733 of federal R&D credits will expire unused.

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law. There are two major corporate tax provisions included in the Act. In general, the IRA creates a 15% corporate alternative minimum tax (“CAMT”) on any corporation that has (or has had) average annual “adjusted financial statement income” for a three-year period preceding the tax year that exceeds $1 billion. The CAMT is effective for tax years beginning after December 31, 2022. The IRA also imposes on publicly traded U.S. corporations a 1% excise tax on certain repurchases of their stock. The excise tax is effective for stock repurchases after December 31, 2022. The Company does not expect the aforementioned provisions in the IRA to have any material impact on the Company’s financial statements.

In addition to the CAMT discussed above, the IRA has production tax credits that are discussed in Note 10, Government Grants.

Unrecognized Tax Benefits

The Company is subject to income taxes in the United States (federal and state), India, and Italy. Significant judgment is required in evaluating the Company’s tax positions and determining the Company’s provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. The Company records a liability for uncertain tax positions on the basis of a two-step process in which (i) management determines whether it is more-likely-than-not that the tax position will be sustained on the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company has unrecognized tax benefits associated with uncertain tax positions as of December 31, 2023 and 2022 as follows:

	For the years ended December 31,
	2023		2022
Gross unrecognized tax benefits as of January 1	$	685	$	719
Additions:
Current year tax positions	—		—
Prior year tax positions	—		—
Rate change	(5)		(34)
Settlements	—		—
Lapse of statute of limitations	—		—
Gross unrecognized tax benefits as of December 31	$	680	$	685

The total amount of gross unrecognized tax benefits was $680 and $685 for the years ended December 31, 2023 and 2022, respectively. The decrease in gross unrecognized tax benefits in 2023 was due to a change in state deferred tax rate.

Included in the balance of unrecognized tax benefits at December 31, 2023 are potential benefits of nil that, if recognized, would affect the effective tax rate on income from continuing operations. The open tax years for federal returns are 2020 and forward, and the open tax years for state returns are generally 2019 and forward. Net operating losses and R&D credits generated in closed years and utilized in open years are subject to adjustment by the tax authorities. The Company is not currently under examination by any taxing jurisdiction.

The Company regularly assesses the adequacy of its provision for income tax contingencies in accordance with ASC 740, Income Taxes. As a result, the Company may adjust the reserves for unrecognized tax benefits for the impact of new facts and developments, such as changes to interpretation of relevant tax law, assessments from taxing authorities, settlements with tax authorities and lapses of statute of limitations.