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INCOME TAXES
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES
NOTE 14. INCOME TAXES

The components of the pretax loss from operations for the years ended December 31 are as follows (in thousands):
202320222021
U.S. Domestic$(54,784)$(54,099)$(68,131)
Foreign(5,984)(8,471)(9,526)
Net loss before income taxes$(60,768)$(62,570)$(77,657)
The components of the (provision) benefit for income taxes for the years ended December 31 is presented in the following table:

202320222021
Current:
Federal$— $— $— 
State(54)(19)(18)
Foreign(796)96 (27)
Total benefit (provision)(850)77 (45)
Deferred:
Federal— — — 
State— — — 
Foreign— — — 
Total deferred provision— — — 
Total benefit (provision)$(850)$77 $(45)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income taxes as of December 31 are as follows (in thousands):

20232022
Deferred tax assets:
Net operating loss carryforward$102,687 $94,003 
General business credit18,466 17,293 
Stock options8,246 12,809 
Intangible assets, definite-lived6,775 7,239 
Section 174 research & development9,097 4,840 
Inventory1,943 2,145 
Operating lease liability379 568 
Property & equipment224 137 
Other608 310 
Total deferred tax assets148,425 139,344 
Valuation allowance(140,104)(138,710)
Deferred tax assets$8,321 $634 
Deferred tax liabilities:
Debt amortization$(7,785)$(24)
Right of use asset(416)(527)
Finance lease liability$(120)$(83)
Total deferred tax liabilities$(8,321)$(634)
Net deferred taxes$— $— 

As of December 31, 2023, the Company generated regular tax federal net operating losses (“NOLs”) of approximately $382.3 million net of Section 382 limitation. As a result of the Tax and Jobs Act (the “TCJA”), for U.S. income tax purposes, NOLs generated prior to December 31, 2017 can be carried forward for up to 20 years. Of the Company's total federal NOLs of $382.3 million, $156.9 million will begin to expire in 2025 and $225.4 million will not expire but will only offset 80% of taxable income generated in tax years after 2017.

As of December 31, 2023, the Company has generated state NOLs of approximately $373.9 million. The Company's state NOLs will begin to expire in 2030.
As of December 31, 2023, the Company has generated $15.4 million of federal research and development (“R&D”) tax credits which begin to expire in 2032.

As of December 31, 2023, the Company has generated $13.3 million of state R&D tax credits which begin to expire in 2031.

Utilization of the Company’s NOL and R&D credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986 (“Section 382”) as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change as defined by Section 382 results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not conducted a comprehensive study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to significant complexity with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the NOL or R&D credit carryforward would be subject to an annual limitation under Section 382. Since the Company has not completed its comprehensive analysis, it is reasonably possible that its federal and state NOLs, and R&D credits available to offset future taxable income could materially decrease. This reduction would be offset by an equal and offsetting adjustment to the existing valuation allowance. Any limitation may result in expiration of a portion of the NOL or R&D credit carryforward before utilization.

The net deferred tax asset valuation allowance is $140.1 million as of December 31, 2023, compared to $138.7 million as of December 31, 2022. The valuation allowance is based on management’s assessment that it is more likely than not that the Company will not have taxable income in the foreseeable future. Due to the Company's consolidated loss position, the Company maintains a valuation allowance against its deferred tax assets. The change in the Company’s valuation allowance during 2023 of $1.4 million is comprised of an increase of $7.8 million in deferred tax expense and $0.4 million in Other Comprehensive Income offset by a decrease in valuation allowance of $6.8 million recorded to equity as discussed below.

As discussed in Note 11, Related Party Transactions, the Company entered into the August 2022 Exchange Agreement with the Schuler Trust on August 15, 2022 to exchange $49.9 million in 2.50% Notes for the Secured Notes of $34.9 million and the Warrant valued at $3.8 million to acquire the Company’s common stock. The gain from the partial extinguishment of the 2.50% Notes was treated as a capital transaction and was recorded to contributed capital for $29.8 million. For the year ended December 31, 2022, the Company recorded the current and deferred tax impact of the transaction to additional paid in capital, with a corresponding adjustment to the valuation allowance, having no net impact on the Company’s financial statements.

As discussed in Note 10, Convertible Notes, in June 2023 the Company entered into a series of agreements with certain holders of the 2.50% Notes, the Schuler Trust, and the holders of the Company's Series A Preferred Stock to effect the restructuring of the Company's capital structure. The Company exchanged $55.9 million aggregate amount of principal 2.50% Notes for $56.9 million aggregate principal amount of newly issued 5.00% Notes including an additional 5.00% Notes for the accrued interest on the 2.50% Notes exchanged of approximately $1.0 million. In addition, the Company issued and sold an additional $10 million aggregate principal amount of 5.00% Notes, bringing the total debt of the 5.00% Notes to approximately $66.9 million. The Company accounted for the transaction as an extinguishment of debt and recognized a loss of $14.1 million which is not deductible for income tax purposes. The Company determined that the 5.00% Notes included an embedded derivative related to the conversion option which was accounted for as a derivative liability and related debt discount of $38.2 million. The Company recorded a deferred tax asset of $9.5 million and a deferred tax liability of $9.5 million for the embedded derivative liability and debt discount, respectively, upon issuance. The Company marked the derivative liability to market through October 17, 2023, the date at which the conversion price became fixed, at which time the derivative liability was reclassed to equity. The deferred tax asset related to the derivative liability of $6.8 million, which was fully offset by a valuation allowance, was reversed at that time and had no impact on the effective tax rate.

The Company began commercialization of its products in Europe in 2016 and has subsidiaries in the Netherlands, Australia, France, Germany, Italy, Spain, and the United Kingdom. The Company intends to treat earnings from its foreign subsidiaries as permanently reinvested.
The difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate for years ending December 31 is as follows:

202320222021
U.S. federal statutory income tax rate(21.00)%(21.00)%(21.00)%
State taxes, net of federal tax benefit(2.06)%(2.55)%(4.26)%
Permanent and other differences2.91 %1.74 %(9.01)%
Debt restructuring3.48 %— %(1.31)%
Change in tax rates(0.36)%0.26 %0.02 %
Return to provision adjustments1.50 %— %— %
Tax rate differential(0.65)%(0.52)%2.30 %
Unrecognized tax benefits(0.17)%1.01 %2.64 %
Nondeductible equity and other compensation7.75 %5.44 %1.72 %
Credit for increased research activities(2.75)%(2.80)%(6.19)%
Change in valuation allowance12.75 %18.30 %35.15 %
1.40 %(0.12)%0.06 %

The Company's uncertain tax positions at December 31 as follows (in thousands):

202320222021
Balance at beginning of year$13,596 $7,556 $4,866 
Increases for prior positions409 380 2,359 
Decreases for prior positions(5,859)— — 
Increases for current year positions698 5,660 1,746 
Decreases due to settlements— (1,415)
Other increases— — — 
Balance at end of year$8,844 $13,596 $7,556 

These uncertain positions are not expected to change within the next twelve months. Of the $8.8 million of uncertain tax positions, $0.6 million would impact the effective tax rate, if reversed. The Company accounts for interest and penalties on uncertain tax positions within tax expense. During the years ended December 31, 2023, 2022 and 2021, the Company recognized $0.1 million, $0.0 million and $0.0 million in interest and penalties in the statements of operations. The Company had $0.1 million, $0.0 million and $0.0 million for the payment of interest and penalties accrued at December 31, 2023, 2022 and 2021, respectively. The Company incurred net operating losses since inception that are subject to adjustment under IRS and state examination. The Company's foreign subsidiaries are generally subject to applicable jurisdiction examination for all years of operations. The Company has adequate tax attributes available to utilize against its uncertain tax positions in a given year.

The Company incurred NOLs since inception that are subject to adjustment under Internal Revenue Service (“IRS”) and state examination. In the first quarter of 2021, the Company was informed by the IRS that they would begin an examination of the Company’s 2018 tax year. The Company substantially completed the IRS audit of the 2018 tax year during 2021. The IRS assessed adjustments reducing the Company's 2018 R&D tax credit and 2018 NOL. The Company has removed the associated reserve for uncertain tax benefits during the year ended December 31, 2022 and adjusted the deferred tax asset for the NOL and R&D credit carryforwards as a result of the audit settlement. No cash taxes, interest or penalties were paid in connection with this settlement. During the year ended December 31, 2022, the Company increased its reserve for uncertain tax positions in connection with the exchange of debt. The Company’s foreign income tax filings are subject to examination by the appropriate foreign tax authorities. The Company is not otherwise currently under examination by tax authorities.
Australia R&D Tax Incentive

The Australian government offers an R&D tax incentive to help companies conducting eligible R&D activities in Australia in the form of refundable tax credits if certain conditions are met. Management assesses the Company’s R&D activities and expenditures to determine which activities and expenditures are likely to be eligible under the tax incentive regime. Annually, management estimates refundable tax credit available to the Company based on available information and submits an application to the Australian tax authority for R&D credit approval. The Company recognizes the refundable R&D tax credits when there is reasonable assurance that the terms have been met, income will be received, the relevant expenditure has been incurred and the consideration can be reliably measured. The refundable R&D tax credit is recorded as a reduction to research and development expense in the consolidated statements of operations when the aforementioned criteria are met. In July 2023, the Company received a $1.1 million refundable R&D tax credit for its 2022 R&D activities in Australia. The Company provided for a full reserve against the credit as sustainability of the credit upon potential examination by the Australian tax authority is uncertain. The Company does not currently believe it is probable that any penalties or interest will be assessed to the extent that the credit is not sustained.