Note 12 — Income Taxes
The reconciliation of the federal statutory income tax rate to our effective income tax rate is as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 |
| U.S. federal statutory rate, beginning of year | 21 | % | | 21 | % |
| Non-controlling interest | (27) | | | (6) | |
| Officers' compensation | 1 | | | (2) | |
| | | |
| Valuation allowance | 5 | | | (13) | |
| Effective tax rate as reported | — | % | — | % | — | % |
Significant components of our deferred tax assets and liabilities at December 31, 2024 and 2023 are as follows (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2024 | | 2023 |
| Deferred tax assets | | | |
| Net operating loss carryforwards and credits | $ | 78,779 | | | $ | 54,839 | |
| Investment in Intermediate Holdings | 17,774 | | | 31,782 | |
| | | |
| Operating lease liabilities | 3,131 | | | 2,972 | |
| Other | 8,283 | | | 4,996 | |
| Less: valuation allowance | (104,685) | | | (91,465) | |
| Total deferred tax assets | 3,282 | | | 3,124 | |
| | | |
| Deferred tax liabilities | | | |
| Operating lease right-of-use assets | (2,564) | | | (2,809) | |
| Other | (718) | | | (315) | |
| Total deferred tax liabilities | (3,282) | | | (3,124) | |
| | | |
| Net deferred tax assets (liabilities) | $ | — | | | $ | — | |
At December 31, 2024, we had federal net operating loss (“NOL”) carryforwards of approximately $370.5 million. Approximately $26.1 million of these NOL carryforwards will expire between 2034 and 2038.
Due to our history of NOLs, current year NOLs and significant risk factors related to our ability to generate taxable income, we have established a valuation allowance to offset our deferred tax assets as of December 31, 2024 and 2023. We will continue to evaluate our ability to release the valuation allowance in the future. Due to our full valuation allowance, we have not recorded a provision for federal or state income taxes during the years ended December 31, 2024 or 2023. Deferred tax assets and deferred tax liabilities are classified as non-current in our Consolidated Balance Sheets.
The Tax Reform Act of 1986 (as amended) contains provisions that limit the utilization of NOL and tax credit carryforwards if there has been a change in ownership as described in Section 382 of the Internal Revenue Code (“Section 382”). Substantial changes in the Company's ownership have occurred that may limit or reduce the amount of NOL carryforwards that the Company could utilize in the future to offset taxable income. The Company has not completed a detailed Section 382 study at this time to determine what impact, if any, that ownership changes may have had on its NOL carryforwards. In each period since its inception, the Company has recorded a valuation allowance for the full amount of its deferred tax assets, as the realization of the deferred tax asset is uncertain. As a result, the Company has not recognized any federal or state income tax benefit in its Consolidated Statement of Operations.
We remain subject to periodic audits and reviews by taxing authorities; however, we did not have any open income tax audits as of December 31, 2024. The federal tax returns for the years beginning 2021 remain open for examination. We have not recorded any unrecognized tax benefits related to uncertain tax positions as of December 31, 2024.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.