Annual report [Section 13 and 15(d), not S-K Item 405]

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES
NOTE 16—INCOME TAXES
As of December 31, 2024, current and future earnings in the Company's foreign subsidiaries are not permanently reinvested. Earnings from these subsidiaries are subject to tax in their local jurisdiction, and withholding taxes in these jurisdictions are considered as distributions are made.
Income (loss) before income taxes by tax jurisdiction consists of the following for the periods shown below (in thousands):
Years Ended December 31,
2024 2023
United States $ (31,268) $ (7,749)
Foreign 3,980  5,229 
Total income (loss) $ (27,288) $ (2,520)
Provision for (benefit from) current and deferred income taxes consists of the following for the periods shown below (in thousands):
Years Ended December 31,
2024 2023
Current tax expense:
Federal $ (11) $ 55 
State 710  559 
Foreign 2,071  3,861 
Total current tax expense $ 2,770  $ 4,475 
Deferred tax expense:
Federal $ (634) $ 9,234 
State 364  3,643 
Foreign (1,101) (479)
Total deferred tax expense $ (1,371) $ 12,398 
Income tax expense $ 1,399  $ 16,873 
The difference between the actual rate and the federal statutory rate is as follows:
Years Ended December 31,
2024 2023
Statutory rate 21.0  % 21.0  %
Foreign provision (0.2) 6.6 
State/province income tax 2.7  (3.7)
Stock compensation (9.6) 43.6 
Unrecognized tax benefits (0.1) 11.1 
Research credit 2.5  14.8 
Return to provision
 5.8  (15.3)
Other foreign branch impacts
 (4.6) (16.7)
Valuation allowance (17.5) (643.4)
Foreign-derived intangible income deduction (FDII) 0.2  1.2 
Global intangible low taxed income (GILTI) (0.5) (2.8)
Non-deductible expenses-other (4.0) (30.7)
Foreign branch income (3.1) (43.6)
Foreign tax deduction 1.8  23.8 
Fair value adjustment on warrants 0.8  25.2 
Foreign tax settlement
 —  (60.6)
Other (0.3) (0.2)
Effective tax rate (5.1) % (669.7) %
Deferred tax assets and liabilities consist of the following (in thousands):
December 31,
2024 2023
Deferred tax assets:
Net operating loss carryforwards $ 2,941  $ 5,770 
Tax credit carryforwards 2,545  1,953 
Accrued liabilities 3,782  955 
Stock compensation 5,954  5,826 
Charitable contribution 1  509 
Intangibles
 —  852 
Property and equipment 13,185  5,288 
Operating lease liabilities 2,231  2,425 
Other
 84  — 
Total gross deferred tax assets $ 30,723  $ 23,578 
Less: Valuation allowance (23,827) (18,300)
Total deferred tax assets $ 6,896  $ 5,278 
Deferred tax liabilities:
Intangibles 638  — 
Prepaid expenses 1,100  1,159 
Operating lease assets 2,140  2,282 
Other —  271 
Total deferred tax liabilities $ 3,878  $ 3,712 
Deferred tax assets (liability), net $ 3,018  $ 1,566 
The Company had approximately $5.1 million of accumulated federal net operating loss as of December 31, 2024, which may be carried forward indefinitely to offset taxable income. The Company had approximately $0.9 million of
accumulated federal research credit carryforward as of December 31, 2024. The federal research credits are limited to a 20-year carryforward period and will expire starting in 2041.
The Company had tax effected state net operating loss carryforwards of approximately $1.8 million as of December 31, 2024, of which $0.1 million will carryforward indefinitely and $1.3 million will begin to expire between 2036 and 2044. The Company had $4.4 million of California research credit carryforwards as of December 31, 2024, which may be carried forward indefinitely. The Company also had $0.6 million of Texas research credit carryforwards as of December 31, 2024, which may be carried forward for 20 years and will expire starting in 2038.
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss the Company expects to enter within the next three months. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 31, 2024, a valuation allowance of $23.8 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:
Years Ended December 31,
2024 2023
Balance at beginning of period $ 347  $ 533 
Increases for tax positions of prior years 170  75 
Increases for tax positions of current year 170  — 
Decreases for tax positions of prior years (14) — 
Settlements —  — 
Decreases for lapses in statute of limitations (148) $ (261)
Balance at end of period $ 525  $ 347 
The Company has analyzed filing positions in all of the federal, state, and foreign jurisdictions where it is required to file income tax returns and for all open tax years. As of December 31, 2024, the Company recorded approximately $0.5 million of unrecognized tax benefits, of which $0.1 million would impact the effective tax rate, if recognized. The Company does not anticipate that its unrecognized tax benefits will materially change within the next 12 months. The Company’s policy for recording interest and penalties associated with audits and unrecognized tax benefits is to record such items as a component of income tax expense. As of December 31, 2024, income tax expense includes an accrual of $0.1 million for the payment of interest and penalties associated with unrecognized tax benefits.
The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. With few exceptions, the Company is subject to examination for both U.S. federal and state tax returns for the years 2021 to present. The tax years starting from 2019 remain open to examination by the Israeli taxing authority. The tax years starting from 2019 remain open to examination by the Hong Kong Inland Revenue Department for Asia. For the remaining jurisdictions, the Company is subject to examination by tax authorities from the date the Company started operations in the respective foreign jurisdiction to present.