Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income before the provision for income taxes consists of the following (in thousands):

	Years Ended December 31,
	2021		2020
Domestic	$	(49,176)	$	(28,029)
Foreign	858		(3,989)
Total loss before provision for taxes	$	(48,318)	$	(32,018)

The components of income tax expense are as follows (in thousands):

	Years Ended December 31,
	2021		2020
Current:
Federal	$	—	$	—
State	46		9
Foreign	321		185
Total current expense	367		194
Deferred:
Federal	(18)		6
State	(1)		6
Foreign	(5)		7
Total deferred expense	(24)		19
Total income tax expense	$	343	$	213

The reconciliation between the federal statutory rate and the Company’s effective tax rate is summarized below:

	Years Ended December 31,
	2021		2020
Federal statutory rate	21.0	%	21.0	%
State taxes, net of federal benefit	(0.1)	%	10.2	%
Foreign earnings at different rates	(0.1)	%	(3.9)	%
Tax credits	0.4	%	0.6	%
Permanent differences	4.4	%	(0.3)	%
Prior year true-up	0.0	%	0.3	%
Change in valuation allowance	(26.3)	%	(40.5)	%
Entity restructuring	0.0	%	11.9	%
Effective tax rate	(0.7)	%	(0.7)	%

Deferred income taxes arise from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes, as well as operating losses and

tax credit carryforwards. Significant components of the Company’s deferred tax assets and liabilities for federal and state income taxes are as follows (in thousands):

	December 31,
	2021		2020
Deferred tax assets:
Net operating loss carryforwards	$	43,804	$	30,400
Tax credit carryforwards	5,579		5,240
Accruals and Reserves	1,638		939
Intangible Assets	4,952		5,287
Other	1,057		449
Gross deferred tax assets	57,030		42,315
Less: valuation allowance	(56,551)		(41,922)
Deferred tax assets	479		393
Deferred tax liabilities:
Depreciation	(43)		(27)
Goodwill	(473)		(428)
Net deferred tax liabilities	$	(37)	$	(62)

The Company has established a full valuation allowance against its U.S. net deferred tax assets due to the uncertainty surrounding the realization of such assets. Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the U.S. net deferred tax assets have been fully offset by a valuation allowance of $56.6 million as of December 31, 2021. The valuation allowance increased by $14.6 million and $13.0 million for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, the Company had total net operating loss carryforwards for federal income tax purposes of approximately $181.5 million, of which $71.9 million was generated before 2018. If not utilized, these pre-2018 net federal operating loss carryforwards will begin to expire at the end of the year. The Company also had a state net operating loss carryforward of approximately $325.5 million which will expire beginning in the year 2022.

For tax years in January 1, 2018 onwards, any federal net operating losses generated will be allowable for carry forward indefinitely, as opposed to the original expiration of 20 years. As of December 31, 2021, the Company had $109.7 million of post-2017 federal net operating losses that can be carryforward indefinitely.

The Company also had federal and state research and development (“R&D”) tax credit carryforwards of approximately $3.0 million and $4.5 million, respectively. The federal tax R&D credit carryforwards will expire beginning in 2030 while the state tax R&D credit carryforwards have no expiration date.

Utilization of the net operating loss carryforwards and R&D tax credit carryforwards may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code, as defined in Section 382, and other similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. During the year ended December 31, 2018, the Company completed a formal 382 study for which the Company wrote off deferred tax assets for NOLs and credits of $3.1 million and $1.2 million, respectively. Since the Company had a full valuation allowance on these assets, there was no material impact to the tax provision. The Company completed another section 382 study for the year ended December 31, 2020 for which the Company had a change in ownership. No additional NOLs or credits will expire unused due to the 2020 annual limitation. Management determined that there was no ownership change in 2021.

Annually, the Company determines whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities in considering whether any tax benefit can be recorded in the

consolidated financial statements. As of December 31, 2021, the Company had unrecognized tax benefits of approximately $8.5 million, none of which will affect the tax rate if recognized. It is unlikely that the amount of liability for unrecognized tax benefits will significantly change over the next 12 months.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits (in thousands):

Balance at January 1, 2020	$	989
Additions for tax positions related to current year	7,259
Balance at December 31, 2020	$	8,248
Additions for tax positions related to prior year	173
Additions for tax positions related to current year	68
Balance at December 31, 2021	$	8,489

It is the Company’s policy to include penalties and interest expense related to income taxes as part of the provision for income taxes.

The Company’s major tax jurisdictions are the United States and California, Switzerland and Neuchâtel. All of the Company’s tax years will remain open for examination by the federal and state tax authorities for three and four years, respectively, from the date of utilization of the net operating loss or R&D Credits. The Company does not have any tax audits or other issues pending.