Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

The following table presents a reconciliation of the statutory federal rate and the Company’s effective tax rate:

	Years Ended December 31,
	2022			2021
Federal statutory income tax rate		21.00	%		21.00	%
State taxes, net of federal benefit		3.85	%		4.72	%
Permanent differences		(0.66	)%		(0.31	)%
Other credits		2.27	%		1.58	%
Foreign rate differential		0.06	%		(0.05	)%
Other		(0.01	)%		(0.51	)%
Change in valuation allowance		(26.51	)%		(26.43	)%
Provision for income taxes	—%			—%

The following table presents the significant components of the Company’s deferred tax assets and liabilities for the periods presented:

	Years Ended December 31,
	2022			2021
Deferred tax assets (liabilities):
Accruals	$	636		$	384
Stock-based compensation		1,223			820
Fixed assets		33			(12	)
Intangible assets		374			365
Unrealized gain		29			18
Prepaid assets		(64	)		—
Capitalized research and development costs under Section 174		5,696			—
Net operating loss carryforwards		22,999			19,857
Research and development credits		3,181			2,385
Research and development credits unrecognized tax benefits		(318	)		(319	)
Valuation allowance		(33,789	)		(23,498	)
Net deferred tax assets (liabilities)	$	—		$	—

At December 31, 2022 and 2021, the Company evaluated all significant available positive and negative evidence, including the existence of losses in recent years and management’s forecast of future taxable income, and, as a result, determined it was more likely than not that federal and state deferred tax assets, including benefits related to net operating loss carryforwards, would not be realized. The valuation allowance was increased from $23.5 million at December 31, 2021 to $33.8 million at December 31, 2022.

The Tax Cuts and Jobs Act ("TCJA") requires taxpayers to capitalize and amortize research and experimental ("R&D") expenditures under section 174 for tax years beginning after December 31, 2021. This rule became effective for the Company during the year and resulted in the capitalization of R&D costs $24.4 million. The Company will amortize these costs for tax purposes over 5 years if the R&D was performed in the U.S. and over 15 years if the R&D was performed outside the U.S. These rules also are in effect for its foreign subsidiaries and the calculation of global intangible low-taxes income ("GILTI") for the Company, of which $0.8 million of foreign R&D costs have been capitalized and will be amortized for tax purposes over 15 years. Given the Company’s current period loss position, this adjustment does not currently have an impact on cash taxes.

As of December 31, 2022, the Company has $89.0 million and $86.2 million of federal and state net operating loss carryforwards, respectively. Federal net operating loss carryforward incurred prior to 2018 as well as the state net operating loss carryforward begin to expire in 2037. Federal net operating losses incurred in 2018 and after have an unlimited carryforward period. The Company also has $0.8 million of Australian net operating loss carryforwards which also have an unlimited carryforward period. Because the Company has incurred cumulative net operating losses since inception, all tax years remain open to examination by U.S. federal, state, and foreign income tax authorities.

The Company had an unrecorded tax benefit of $0.3 million due to uncertain tax positions as of December 31, 2022 and 2021. The Company's policy for recording interest and penalties is to record them as a component of interest expense and operating expenses, respectively. As of December 31, 2022, the Company had no accrued interest or penalties related to uncertain tax positions. The total unrecorded benefit would affect the effective tax rate but for the Company's valuation allowance. The Company does not expect a material change in unrecognized tax benefits within the next 12 months.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

	Years Ended December 31,
	2022			2021
Balance at the beginning of the year	$	319		$	139
Additions for tax positions taken in the current year		37			110
Addition (reduction) for prior tax positions		(38	)		70
Balance at the end of the year	$	318		$	319

Potential 382 limitation

The Company’s ability to utilize its net operating loss (NOL) and research and development (R&D) credit carryforwards may be substantially limited due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain stockholders or public groups.

The Company has not completed a study to assess whether one or more ownership changes have occurred since the Company became a loss corporation under the definition of Section 382. If the Company has experienced an ownership change, utilization of the NOL or R&D credit carryforwards would be subject to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any such limitation may result in the expiration of a portion of the NOL or R&D credit carryforwards before utilization. Until a study is completed and any limitation known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit under ASC-740. Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance, it is not expected that any possible limitation will have an impact on the results of operations of the Company.