Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 11. Income taxes

The components of the Company's loss before income taxes were as follows (in thousands):

	Year ended December 31,
	2022			2021
United States	$	(48,191	)	$	(87,907	)
International		(3,753	)		(2,038	)
Total	$	(51,944	)	$	(89,945	)

The Company recorded a benefit for income taxes of $0.3 million for the year ended December 31, 2022 and did not record a provision or benefit for income taxes for the year ended December 31, 2021.

The provision for income taxes differs from the amount expected by applying the federal statutory rate to the loss before taxes as follows:

	Year ended December 31,
	2022				2021
Federal statutory income tax rate		21.00		%		21.00		%
State income taxes		0.89				0.96
Income tax credits		1.49				2.17
Stock based compensation		(0.82	)			1.68
Non-deductible expenses and others		(3.38	)			0.26
Change in valuation allowance		(18.63	)			(26.07	)
		0.55		%		—		%

As of December 31, 2022 and 2021, the components of the Company’s deferred tax assets are as follows (in thousands):

	Year ended December 31,
	2022			2021
Deferred tax asset:
Federal and State net operating loss carryforwards	$	49,481		$	44,933
Stock based compensation		9,667			6,853
Other accruals		515			396
Capitalized research and development expense		3,094			—
Tax credits		7,970			6,737
Gross deferred tax asset		70,727			58,919
Valuation allowance		(69,692	)		(58,611	)
Total deferred tax assets (liabilities)		1,035			308
Deferred tax liabilities:
Property and equipment		(11	)		(5	)
Capitalized leases		(32	)		(303	)
IP R&D		(1,239	)		—
Gross deferred tax liabilities		(1,282	)		(308	)
Net deferred tax liabilities	$	(247	)	$	—

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does not believe that it is more likely than not that the deferred tax assets will be realized; accordingly, a full valuation allowance has been established and a deferred tax liability has been recorded as shown in the accompanying balance sheets. The valuation allowance increased by approximately $11.1 million and $23.6 million, respectively for the years ended December 31, 2022 and 2021.

At December 31, 2022, the Company has federal net operating loss carryforwards of approximately $225.4 million of which $209.5 million will not expire and $15.8 million begin expiring in 2034. The Company also has state net operating loss carryforwards of approximately $16.3 million which begin to expire in 2034. Additionally, the Company has federal tax credits of approximately $9.3 million which begin to expire in 2036 and state tax credits of approximately $3.0 million which do not expire.

At December 31, 2022, the Company has foreign net operating loss carryforwards of approximately $2.4 million, which have no expiration date.

Use of the net operating loss and credit carryforwards may be subject to a substantial annual limitation due to the ownership change provisions of U.S. tax law and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before use.

Pursuant to the Internal Revenue Code, as amended (the “Code”) Sections 382 and 383, annual use of a company’s NOL and research and development credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% within a three-year period. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. If limited, the related tax asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. The Company has completed such an analysis pursuant to Sections 382 and 383 through December 31, 2021 and determined there was a change in control with an immaterial impact on the NOL available to offset future taxable income. The Company has reviewed the shareholder activity for the year ended December 31, 2022 and believe that no additional limitations have occurred.

Uncertain Tax Positions

The Company follows the provisions of the FASB ASC 740-10, Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in the consolidated financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded in the consolidated financial statements due to the fact the liabilities have been netted against deferred attribute carryovers. It is the Company’s policy to include penalties and interest related to income tax matters in income tax expense

The Company is subject to taxation in the United States and Australia. Because of the net operating loss and research credit carryforwards, all of the Company’s tax years, from 2013 to 2022, remain open to U.S. federal, California, other state tax examinations. The Company's Australian subsidiaries remain open to examination from their inception to 2022. There were no interest or penalties accrued at December 31, 2022 and 2021. The Company does not expect that our uncertain tax positions will materially change in the next twelve months. The additional uncertain tax benefits would not impact our effective tax rate to the extent that we continue to maintain a full valuation allowance against our deferred tax assets.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Year ended December 31,
	2022		2021
Beginning balance	$	3,249	$	1,976
Additions for tax positions taken in a prior year		—		—
Additions for tax positions taken in a current year		439		1,273
Ending balance	$	3,688	$	3,249

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") into law. The Company reviewed the aspects of this law as it relates to income taxes and concluded that the CARES Act did not have a material impact to the Company’s 2022 or 2021 provision for income taxes.

On August 16, 2022 the President signed into law the Inflation Reduction Act of 2022. The primary tax provisions in the new law include an alternative minimum tax (AMT) on certain large corporations, a tax on stock buybacks and certain energy-related tax credits each of which become effective after December 31, 2022. The provisions of the Inflation Reduction Act did not have a material effect on the Company’s 2022 tax provision and related disclosures. The Company will continue to evaluate changes and revisions of the Inflation Reduction Act of 2022 and its impact on the Company’s financial position, results of operations and cash flows.