Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Loss before provision from income taxes for the years ended December 31, 2022 and 2021 consisted of the following (in thousands):

	YEAR ENDED DECEMBER 31,
	2022		2021
United States	$	(112,240)	$	(55,961)
Foreign	7,561		(772)
Loss before provision from income taxes	$	(104,679)	$	(56,733)

The components of income tax provision (benefit) for the years ended December 31, 2022 and 2021 consisted of the following (in thousands):

	YEAR ENDED DECEMBER 31,
	2022		2021
Current income tax provision (benefit):
Federal	$	—	$	—
State	—		11
Foreign	—		2,000
Total current income tax provision (benefit)	$	—	$	2,011
Total deferred income tax benefit	$	—	$	—
Total income tax provision (benefit)	$	—	$	2,011

A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate for the years ended December 31, 2022 and 2021 was as follows:

	YEAR ENDED DECEMBER 31,
	2022		2021
Federal income tax at statutory rate	21.0	%	21.0	%
State income tax, net of federal benefit	5.2		6.7
Stock compensation	(2.8)		(1.5)
Permanent differences	(1.4)		—
Research and development credits	2.5		4.8
Impact of foreign operations	(0.3)		(0.6)
Foreign withholding taxes	—		(2.8)
Other	(3.3)		(0.3)
Tax credits	3.2		—
Change in valuation allowance	(24.1)		(30.9)
Effective tax rate	—	%	(3.5)	%

Net deferred tax assets as of December 31, 2022 and 2021 consisted of the following (in thousands):

	YEAR ENDED DECEMBER 31,
	2022		2021
Net operating loss carryforwards	$	37,687	$	27,833
Research and development credits	10,459		6,315
Capitalized research and development expenses	10,822		—
Operating lease liability	3,602		298
Accrueds	1,275		597
Intangibles	115		127
Other	$	908	$	558
Total deferred tax assets	$	64,868	$	35,728
Valuation allowance	(60,650)		(35,445)
Net deferred tax assets	$	4,218	$	283
Deferred tax liability
Operating lease right-of-use asset	(4,218)		(283)
Net deferred tax assets (liability)	$	—	$	—

As of December 31, 2022, the Company had U.S. federal, state and foreign net operating loss (“NOL”) carryforwards of $138.7 million, $137.8 million and $0 million, respectively. Of the $138.7 million federal NOLs, $0.2 million will expire in 2035 and the remaining $138.5 million can be carried forward indefinitely. The previously reported foreign tax loss carryforwards were fully absorbed in 2022. The state NOL carryforwards expire in 2039.

As of December 31, 2022, the Company had U.S. federal and state research and development tax credit carryforwards of $6.0 million and $3.5 million, respectively. As of December 31, 2021, the Company had U.S. federal and state research and development tax credit carryforwards of $4.3 million and $2.5 million, respectively. The tax credits begin to expire in 2031. As of December 31, 2022, the Company had foreign research and development tax credit carry forward of $1.6 million.

Under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the NOL and tax credit carryforwards are subject to review and potential adjustments by the Internal Revenue Services and state tax authorities. Under Section 382 of the Code (“Section 382”), certain substantial changes in the Company’s ownership, including the sale of the Company or significant changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of NOL carryforwards or tax credits which could be used annually to offset future taxable income. The Company completed an analysis under Section 382 through November 17, 2020 and determined that on April 15, 2016 and April 13, 2020, ownership changes had occurred. Based on the Company’s analysis, the Company has determined that $0.3 million and $0.3 million of its federal and state NOL carryforwards, respectively, are limited by Section 382 as of December 31, 2022 and have been written off in the prior period. The remaining unused carryforwards remain available for future periods. The Company may also experience ownership changes in the future as a result of subsequent shifts in the Company’s stock ownership, some of which may be outside the Company’s control. As a result, its ability to use its pre-change NOLs or tax credits to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of research and development credits and NOLs. Under the applicable accounting standards, management has considered the Company’s history of losses and concluded that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets. Accordingly, a full valuation allowance was maintained as of December 31, 2022 and 2021. A change in the Company’s valuation allowance was recorded in 2022 and 2021, in the amount of $25.2 million and $17.5 million, respectively, due primarily to the generation of additional net deferred tax assets.

The Tax Cuts and Jobs Act resulted in significant changes to the treatment of research and developmental (“R&D”) expenditures under Section 174. For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all R&D expenditures that are paid or incurred in connection with their trade or business. Specifically, costs for U.S.-based R&D activities must be amortized over five years and costs for foreign R&D activities must be amortized over 15 years – both using a midyear convention. During the year ended December 31, 2022, the Company capitalized $44.3 million of R&D expenses.

The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which it operates or does business in. A tax benefit from an

uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

The Company records tax positions as liabilities and adjusts these liabilities when its judgement changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company’s current estimate of the recognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of December 31, 2022 and 2021, the Company has not recorded any uncertain tax positions in its financial statements.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. As of December 31, 2022 and 2021, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from December 31, 2016, to the present. There are currently no pending income tax examinations. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state tax authorities to the extent utilized in a future period.