Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 11 – Income Taxes

The components of loss before income taxes are as follows (in thousands):

	December 31,			December 31,
	2023			2022
U.S. loss before taxes	$	(48,590	)	$	(66,750	)
Foreign income before taxes		2			3
Loss before income taxes	$	(48,588	)	$	(66,747	)

Income tax expense for the years ended December 31, 2023 and 2022 consists of the following (in thousands):

	Year ended December 31,
	2023			2022
Current:
Federal	$	—		$	—
State		21			8
Foreign		(1	)		1
		20			9
Deferred:
Federal		(9,527	)		(11,366	)
State		(3,266	)		(3,542	)
Foreign		—			—
		(12,793	)		(14,908	)
Change in valuation allowance		12,793			14,908
Income tax expense	$	20		$	9

The significant components that comprised the Company’s net deferred taxes are as follows (in thousands):

	Year ended December 31,
Deferred tax assets:	2023			2022
Net operating loss	$	73,600		$	70,179
Amortization		81			99
R&D expenditures capitalization		10,923			4,879
Stock-based compensation		3,292			2,960
Research and development credit		11,271			9,202
Right-of-use liability		752			1,204
Depreciation		1,035			779
Other		2,934			2,332
Gross deferred tax assets		103,888			91,634
Less: valuation allowance		(103,242	)		(90,471	)
Total net deferred tax assets	$	646		$	1,163
Deferred tax liabilities:
Right-of-use asset		(646	)		(1,163	)
Total deferred tax liabilities		(646	)		(1,163	)
Net deferred tax assets	$	—		$	—

A reconciliation of the provision for income taxes with the expected income tax computed by applying the federal statutory income tax rate to loss before provision for income taxes was calculated as follows (amounts in thousands):

	December 31, 2023						December 31, 2022
	Rate			Amount			Rate			Amount
Income tax provision at the federal statutory tax rate		21.0	%	$	(10,203	)		21.0	%	$	(14,017	)
State taxes, net of federal benefit		4.1	%		(1,992	)		3.5	%		(2,358	)
Research and development credits		3.7	%		(1,805	)		1.9	%		(1,269	)
Stock-based compensation		(0.3	)%		150			(2.4	)%		1,625
Other non-deductible permanent items		(0.5	)%		246			(0.2	)%		105
Expired tax attributes		(2.2	)%		1,070			(1.5	)%		988
Other		0.5	%		(239	)		0.0	%		27
Change in valuation allowance		(26.3	)%		12,793			(22.3	)%		14,908
Income tax expense		0.0	%		20			0.0	%	$	9

The tax effects of items that give rise to significant portions of deferred tax assets are primarily net operating loss carryforwards. The Company evaluates the recoverability of deferred tax assets and assesses all available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Based on the weight of all the evidence, including a history of operating losses and the Company’s ability to generate future taxable income to realize these assets, a full valuation allowance has been recorded to offset the net deferred tax asset as

realization of such asset is uncertain. The Company’s valuation allowance increased by $12.8 million and $14.9 million in 2023 and 2022, respectively.

As of December 31, 2023, the Company had federal net operating loss carryforwards of $311.2 million and state net operating loss carryforwards of $148.6 million which will not expire and will be able to offset 80% of taxable income in future years. Of the $311.2 million in federal NOLs, $204.8 million will not expire and will be able to offset 80% of taxable income in future years. Of the $148.6 million in state NOLs, $25.3 million will not expire and will be able to offset 80% of taxable income in future years. The remaining federal NOL carryforwards will expire between 2024 and 2037, and the remaining state NOL carryforwards will expire between 2025 and 2043. In addition, the Company also had federal credit carry forwards of $9.9 million and state credit carry forwards of $9.3 million as of December 31, 2023, which may be available to offset future tax liabilities. The federal credits will expire between 2037 and 2043, and the state credits do not expire.

The Inflation Reduction Act 2022 which incorporates a Corporate Alternative Minimum Tax (“CAMT”) was signed on August 16, 2022. The changes will affect tax years beginning after December 31, 2022. The new tax will require companies to compute two separate calculations for federal income tax purposes and pay the greater of the new minimum tax or their regular tax liability. The CAMT act is not expected to have a material impact on the Company's consolidated financial statements.

Utilization of the net operating loss carryforwards may be subject to substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state provisions. These ownership changes may limit the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups.

Pursuant to Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s net operating loss and R&D credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Sections 382 and 383 analysis regarding the limitation of net operating loss and R&D credit carryforwards as of December 31, 2023. The Company has not completed a formal R&D study but has estimated the federal and California credit for purposes of the tax footnote as of December 31, 2023. However, the Company has not reflected a benefit in the consolidated financial statements due to the recorded valuation allowance.

The following reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):

	Year ended December 31,
	2023		2022
Beginning balance of unrecognized tax benefits	$	3,494	$	3,013
Additions for current year tax positions		683		481
Reductions for prior year tax positions		67		—
Ending balance	$	4,244	$	3,494

None of the unrecognized tax benefits, if recognized, would impact the annual effective rate, due to the valuation allowance. The Company’s unrecognized tax benefits are recorded as a reduction in deferred tax assets. The Company does not expect any significant increases or decreases to the Company’s unrecognized tax benefits within the next 12 months. Due to the existence of the valuation allowance, future changes in the Company's unrecognized tax benefits will not impact the Company's effective tax rate. The Company has not incurred any material interest or penalties as of the current reporting date with respect to income tax matters.

The Company is subject to U.S. federal and various states' income taxes. The federal returns for tax years 2020 through 2023 remain open to examination and the state returns remain subject to examination for tax years 2019 through 2023. Carryforward attributes that were generated in years where the statute of limitations is closed may still be adjusted upon examination by the Internal Revenue Service or other respective tax authorities. All other state jurisdictions remain open to examination. There are no cumulative earnings in our foreign subsidiaries as of December 31, 2023 and 2022 that would be subject to U.S. income tax or foreign withholding tax. The Company plans to indefinitely reinvest any future earnings of its foreign subsidiaries.