Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

9. Income Taxes

All losses before income taxes were generated in the United States. The Company recorded insignificant income tax expense in the years ended December 31, 2022 and 2021.

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

	Years Ended December 31,
		2022	2021
Federal statutory rate		21.00%	21.00%
State blended rate		4.77%	4.99%
Stock-based compensation		(3.13)%	(3.61)%
Gain on extinguishment of debt		(—)%	(8.53)%
Other permanent items		(—)%	(0.47)%
Change in valuation allowance		(22.11)%	(62.41)%
Convertible debt embedded derivative		(—)%	44.95%
Other		(0.56)%	4.02%
Effective tax rate		(0.03)%	(0.06)%

The tax effects of temporary differences and carryforwards of the deferred tax assets and liabilities are presented below (in thousands):

	December 31,
		2022		2021
Deferred tax assets:
Net operating loss carryforwards	$	57,256	$	50,494
Depreciation and amortization		4,334		4,656
Accruals and reserves		4,187		3,577
Interest expense limitation carryforward		3,056		2,229
Research and development credits		2,043		2,250
Lease liability		90		-
Gross deferred tax assets		70,966		63,206
Less: valuation allowance		(70,746)		(63,206)
Net deferred tax assets		220		-
Deferred tax liability:
Debt discount		(151)		-
Lease liability		(69)
Total	$	-	$	-

The valuation allowance increased by $7.5 million and $13.4 million for the years ended December 31, 2022 and 2021, respectively. Realization of deferred tax assets is dependent upon future earnings, if any, the timing of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance.

As of December 31, 2022, the Company had federal and state net operating loss carryforwards of $214.4 million and $187.5 million, respectively, available to reduce future taxable income, if any. The net operating loss carry forwards will expire beginning in 2028 for both federal and California income tax purposes. Federal net operating losses generated beginning in 2018 are carried forward indefinitely.

As of December 31, 2022, the Company had federal and state research credit carry forwards of $1.5 million and $1.5 million available to reduce future taxable income, if any, for both federal and California state income tax purposes, respectively. Federal tax credits begin to expire in 2029 and California credits carry forward indefinitely.

Utilization of the net operating loss carry forwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended and similar state provisions. A Section 382 "ownership change" generally occurs if one or more stockholders or groups of stockholders, who own at least 5% of the Company's stock, increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. The Company performed the analysis in 2021 and determined that it has experienced an ownership change in February 2010 as a result of stock transfers and the issuance of preferred stock. This change in ownership does not significantly impact the Company’s federal and state net operating loss carryforwards and research and development credit carryovers as of December 31, 2022 pursuant to Section 382 and Section 383 of the Internal Revenue Code and similar provisions under state law.

The Company follows the provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or expected to be taken on a tax return.

The following table reflects changes in the unrecognized tax benefits for the periods presented (in thousands):

	December 31,
		2022		2021
Gross amount of unrecognized tax benefits as of the beginning of the period	$	465	$	447
Increases related to current year tax provisions		296		18
Gross amount of unrecognized tax benefits as of the end of the period	$	761	$	465

As of December 31, 2022, the Company has unrecognized tax benefits of $0.8 million. It is unlikely that the amount of liability for unrecognized tax benefits will significantly change over the next 12 months. It is the Company's policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary. There were no interest or penalties accrued during or for the years ended December 31, 2022 and 2021. Due to the Company’s full valuation allowance, the unrecognized tax benefits would not materially impact the Company’s effective tax rate when recognized.

The Company's tax years 2009 through 2022 will remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating losses and tax credits.