Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 10. Income Taxes

The geographical distribution of loss before income taxes are summarized below (in thousands):

	December 31,
	2022			2021
United States	$	(24,173	)	$	(30,453	)
Foreign		106			(457	)
Loss before income taxes	$	(24,067	)	$	(30,910	)

The provision for income tax benefit differs from the amount estimated by applying the statutory federal income tax rate to the operating loss due to the following (in thousands):

	December 31,
	2022			2021
Tax (benefit) on the loss before income tax expense    computed at the federal statutory rate	$	(5,055	)	$	(6,501	)
State tax (benefit) at statutory rate, net of federal    benefit		(527	)		(2,342	)
Foreign rate differential		-			12
Change in valuation allowance		5,702			8,711
Change in research and development credits		(652	)		(364	)
Stock based compensation		(734	)		52
Change in fair value of warrants		(6	)		(107	)
Change in fair value of contingent consideration		(150	)		(153	)
Change in net operating loss true up		739			712
Change in capital losses		405			—
Change in state rates		375			—
Other		(97	)		(20	)
Provision for income tax benefit	$	—		$	—

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows at December 31, 2022 and 2021 (in thousands):

	December 31,
	2022			2021
Non-current deferred tax assets:
Federal and state net operating loss carryforwards	$	49,024		$	48,542
Research and other credits		4,146			3,312
Capitalized research and development		2,828			—
Reserves and accruals		547			573
Fixed assets		44			59
Capital loss carryover		555			1,115
Stock based compensation		2,682			1,133
Lease liability		42			133
Other deferred tax assets		72			102
Gross non-current deferred tax assets		59,940			54,969
Intangible assets		(2,888	)		(3,536	)
Right-of-use assets		(35	)		(118	)
Total non-current deferred tax liabilities		(2,923	)		(3,654	)
Total deferred tax assets		57,017			51,315
Valuation allowance		(57,017	)		(51,315	)
Net deferred tax assets	$	—		$	—

The Company has recorded a full valuation allowance against its net deferred tax assets due to the uncertainty as to whether such assets will be realized. The valuation allowance increased by $5.7 million from December 31, 2021 to December 31, 2022 primarily due to the generation of current year net operating losses, research and development credits claimed, capitalized research and developments costs, and stock-based compensation.

As of December 31, 2022, the Company had $195.0 million of federal, $110.4 million of state and $2.5 million of foreign net operating losses available to offset future taxable income. The Federal net operating loss carryforwards arising from years prior to 2018 began to expire in 2023, however post 2017 federal net operating loss carryforwards of $90.1 million may be carried forward indefinitely. The state net operating loss carryforwards will begin to expire in 2028 and the foreign net operating loss carryforward can be carried forward indefinitely, if not utilized. As of December 31, 2022, the Company also had $3.9 million of federal and $2.5 million of state research and development credit carryforwards. The federal research and development credit carryforward begin to expire in 2024 and the state research and development credit can be carried forward indefinitely. Beginning in fiscal year 2023, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures currently and requires taxpayers to amortize such costs over a period of five or fifteen years. While it is possible that Congress may modify, defer, or repeal such provision, we have no assurance that the provision will be modified, deferred or repealed.

Utilization of the net operating loss and tax credit carry forwards are subject to an annual limitation due to the ownership percentage change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of the net operating loss before utilization. The Company completed Section 382 analysis through December 2016 and determined that an ownership change, as defined under Section 382 of the Internal Revenue Code, occurred in June 2016. The Company’s tax attributes are subject to an annual limitation of $0.5 million per year for federal purposes. For years ended after December 31, 2016, the utilization of net operating losses and tax credit carryforwards are subject to further limitation in the event an additional ownership change were to occur for tax purposes. The Company is currently in the process of analyzing whether there was an ownership change, as defined under Section 382 of the Internal Revenue Code, resulting from the issuance of new shares during 2018 through 2021 and expects that analysis to completed during 2022. As such, as of the date of these consolidated financial statements the Company is not able to determine the impact on the net operating loss (NOL) carryforwards, if any.

U.S. taxes and foreign withholding taxes have not been provided on undistributed earnings for certain non-U.S. subsidiaries as of December 31, 2022, as the earnings, if any, are intended to be indefinitely reinvested.

The following tables summarize the activities of gross unrecognized tax benefits (in thousands):

	December 31,
	2022		2021
Beginning balance	$	1,557	$	1,323
Decrease related to prior year tax positions		—		—
Increase related to current year tax positions		379		234
Ending balance	$	1,936	$	1,557

The Company uses the “more likely than not” criterion for recognizing the tax benefit of uncertain tax positions and to establish measurement criteria for income tax benefits. The Company has determined it has $1.9 million of unrecognized assets and liabilities related to uncertain tax positions as of December 31, 2022. Changes in the unrecognized tax benefits within the next 12 months are expected to be similar to prior years and should not significantly increase or decrease. In the event the Company should need to recognize interest and penalties related to unrecognized tax liabilities, this amount will be recorded as a component of other expense.

There were no unrecognized tax benefits that would impact the effective tax rate as of December 31, 2022 and December 31, 2021. As of December 31, 2022, unrecognized tax benefits of $1.9 million would be offset by a change in valuation allowance.

The Company files income tax returns in the U.S. federal jurisdiction, certain state jurisdictions, United Kingdom and Ireland. In the normal course of business, the Company is subject to examination by federal, state, local and foreign jurisdictions, where applicable. In the U.S federal jurisdiction, tax years 2003 forward remain open to examination, in the state tax jurisdiction, years 2008 forward remain open to examination and in the foreign jurisdiction, years 2015 forward remain open to examination. The Company is currently not under audit by any federal, state, local or foreign jurisdiction.