Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of loss before income taxes were:

For the Years Ended
December 31,
2023		 December 31,
2022
United States $ (26,676) $ (21,563)
Foreign (30,866) (6,469)
Total (57,542) (28,032)

The Company follows the provisions of the accounting guidance on accounting for income taxes which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax asset to a level which, more likely than not, will be realized.

The benefit for income taxes is comprised of the following components:
For the Years Ended
Current:
 December 31,
2023		 December 31,
2022
Federal
 $ —  $ — 
State
 —  — 
Total current
 —  — 
Deferred:
Federal
 —  (84)
State
 —  (60)
Foreign (1,466) (628)
Total deferred (1,466) (772)
Total income tax benefit
 $ (1,466) $ (772)

The income taxes benefit differs from the amount computed by applying the statutory federal income tax rate to loss before income taxes. The sources and tax effects of the differences are as follows:
For the Years Ended
December 31,
2023		 December 31,
2022
Tax at federal statutory rate 21.00  % 21.00  %
State and local tax 1.88  8.43 
Foreign rate differential(1)
 2.16  0.93 
Warrant liability 0.78  18.17 
Executive compensation (2.74) — 
Earn-out (3.68) (4.72)
Prior year adjustments —  (0.64)
Change in deferred tax rate (7.59) — 
Change in valuation allowance(1) (9.55) (37.58)
Other 0.29  (0.57)
Transaction costs —  (2.27)
Effective tax rate 2.55  % 2.75  %
(1) Prior period percentage have been updated to conform to current period presentation
The Company’s deferred tax assets/(liabilities) consist of the following:
As of December 31,
2023 2022
Deferred tax assets:
Net operating loss carryforwards $ 25,351  $ 22,522 
Stock-based compensation 2,523  2,225 
Research and development credits 708  424 
Capitalized Research Expenses 2,110  1,244 
Operating lease liability 6,416  4,690 
Accrued expenses 1,055  657 
Other 766  691 
Total deferred tax assets 38,929  32,453 
Deferred tax liabilities:
Property and equipment —  (155)
481(a) Adjustment —  (97)
Operating right-of-use asset (6,145) (4,492)
Amortization of intangibles (2,073) (3,917)
Total deferred tax liabilities (8,218) (8,661)
Total net deferred tax assets, before valuation allowance
 30,711  23,792 
Less: Valuation allowance (31,162) (25,668)
Deferred tax liabilities, net of valuation allowance $ (451) $ (1,876)

As of December 31, 2023, the Company has a valuation allowance of approximately $31,162 against the net deferred tax assets, for which realization cannot be considered more likely than not at this time. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, jurisdictional netting and past financial performance. As of December 31, 2023 and 2022, based upon the consideration of such evidence, management believes a full valuation allowance against net deferred tax assets is warranted, with the exception of Monaco net operating losses.

The valuation allowance recorded by the Company as of December 31, 2023 resulted from the uncertainties of the future utilization of deferred tax assets relating primarily to net operating loss (“NOL”) carryforwards for US federal, Canada, France and US state income tax purposes. Realization of the NOL carryforwards is contingent on future taxable earnings. The deferred tax asset was reviewed for expected utilization using a “more likely than not” approach by assessing the available positive and negative evidence surrounding its recoverability. Accordingly, a full valuation allowance continues to be recorded, with the exception of Monaco net operating losses, as it was determined based upon past and projected future losses that it was “more likely than not” that the Company’s deferred tax assets would not be realized. The Company’s net deferred tax liability of $451 relates solely to Blade Europe. The Company's valuation allowance increased by $5,494 in 2023.

As of December 31, 2023, the Company has approximately $79,737 of gross US federal and $94,644 of gross US state and local net operating loss carryforwards. The US federal, state and city net operating losses begin to expire in the year 2035. Federal net operating losses incurred in tax year 2018 and beyond do not expire. The Company has $65,770 of federal net operating losses with an indefinite life.
 
In addition, as of December 31, 2023, the Company has approximately $4,551 of gross Canadian, $4,414 of gross French and $931 of gross Monaco net operating losses. Canadian net operating losses can be carried forward 20 years and French
& Monaco net operating losses can be carried forward indefinitely. Canadian net operating losses will begin to expire in 2041.
 
Sections 382 and 383 of the Internal Revenue Code of 1986 subject the future utilization of net operating losses and certain other tax attributes, such as research and experimental tax credits, to an annual limitation in the event of certain ownership changes, as defined. The Company has undergone an ownership change study and has determined multiple changes in ownership as defined by IRC Section 382 of the Internal Revenue Code of 1986, did occur in December 2017, February 2018, and May 2021.
 
Based on the Company having undergone multiple ownership changes throughout its history, limited NOLs are subject to limitation at varying rates each year. Of the Company's $79,737 of total gross federal NOLs, approximately $3,858 of the Company's NOL carryforwards are subject to limitation. In addition, approximately $1,459 of NOLs and $112 of R&D Credits are expected to expire unused. The deferred tax assets associated with these attributes that are expected to expire without utilization have not been included within the deferred tax asset table or discussion above. There are approximately $75,879 of NOLs available to offset taxable income as of December 31, 2023. NOLs will continue to become available through 2037.
 
The Tax Cuts and Jobs Act of 2017 (TCJA) has modified the IRC 174 expenses related to research and development for tax years beginning after December 31, 2021. Under the TCJA, the Company must now capitalize the expenditures related to research and development activities and amortize over five years for U.S. activities and 15 years for non-U.S. activities using a mid-year convention. Therefore, the capitalization of research and development costs in accordance with IRC 174 resulted in a gross deferred tax asset of $7,682.
 
The Company files tax returns in the U.S. federal, Canada, France, Monaco and various US state and local jurisdictions and is subject to examination by tax authorities. The Company has reported US net operating losses dating back to inception. The IRS may examine records from the year a loss occurred when a net operating loss is applied. Thus, the Company is subject to U.S. federal income tax examinations for all years. The statute in other jurisdictions is generally three to four years but could be extended in certain circumstances.

On August 16, 2022, President Biden signed the Inflation Reduction Act, which is effective for tax years beginning on or after January 1, 2023 and includes a corporate minimum tax on certain corporations and a one percent excise tax on stock repurchases. We do not anticipate this legislation will have a material impact on our consolidated financial statements.