Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 12—Income Taxes

Provision for income taxes

There is no provision for income taxes because the Company has incurred operating losses and capitalized certain items for income tax purposes since its inception and maintains a full valuation allowance against its net deferred tax assets. The reported amount of

income tax expense for the period differs from the amount that would result from applying the federal statutory tax rate to net loss before taxes primarily because of the change in valuation allowance.

Beginning in 2022, the 2017 Tax Cuts and Jobs Act amended Section 174 to eliminate current-year deductibility of research and experimentation (R&E) expenditures and software development costs (collectively, R&E expenditures) and instead require taxpayers to charge their R&E expenditures to a capital account amortized over five years (15 years for expenditures attributable to R&E activity performed outside the United States). The Company generated a deferred tax asset for capitalized R&E expenditures for the years ended December 31, 2023 and 2022 which are fully offset by valuation allowances for each period.
 

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or the Inflation Act, into law. The Inflation Act contains certain tax measures, including a corporate alternative minimum tax of 15% on some large corporations and an excise tax of 1% on corporate stock buy-backs. The various provisions of the Inflation Act do not have a material impact on the Company’s consolidated financial statements.

The effective tax rate of the Company's provision (benefit) for income taxes differs from the federal statutory rate as follows:

	For the Year Ended December 31,
	2023			2022
Statutory rate		21.00	%		21.00	%
State tax		0.33	%		0.25	%
Research and development tax credits		(18.98	)%		4.91	%
Other permanent differences		(0.67	)%		(0.55	)%
Change in valuation allowance		8.10	%		(25.61	)%
Change in fair value of warrant liability		(6.55	)%		(0.00	)%
Change in fair value of term loan		(0.30	)%		(0.00	)%
Stock-based compensation		(2.93	)%		(0.00	)%
Income tax provision (benefit)		0.00	%		0.00	%

Deferred tax assets and valuation allowance

Deferred tax assets reflect the tax effects of NOLs, tax credit carryovers, and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 2023 and 2022, the significant components of the Company’s net deferred tax assets and liabilities are as follows (in thousands):

	For the Year Ended December 31,
	2023			2022
Deferred tax assets:
Net operating loss carryforwards	$	47,373		$	45,609
Tax credit carryforwards		1,961			23,216
Accruals and reserves		1,020			689
Other		3,978			1
Intangibles		4,888			4,607
Non-qualified stock options		2,585			3,647
R&E expenditures		22,497			15,563
Lease liabilities		4,452			4,574
Impairment of long-lived assets		5,509			5,525
Total deferred tax assets		94,263			103,431
Deferred tax liabilities
Right-of-use assets		(2,224	)		(2,308	)
Fixed assets		(2	)		(47	)
Total deferred tax liabilities		(2,226	)		(2,355	)
Valuation allowance		(92,037	)		(101,076	)
Net deferred taxes	$	—		$	—

The valuation allowance is equal to the total net deferred tax asset amounts as of December 31, 2023 and 2022. ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is "more likely than not." Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Because of the Company's recent history of operating losses,

management believes that recognition of the deferred tax assets net of liabilities arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.

The valuation allowance decreased by $9.0 million during the year ended December 31, 2023, due to the write-off of certain worthless deferred tax assets, and increased by $42.8 million during the year ended December 31, 2022.

As of December 31, 2023, there were gross federal NOLs of $222.1 million, gross state NOLs of $11.9 million, federal tax credit carryforward of $28.6 million, and state tax credit carryforward of $1.2 million. The net operating losses and state tax credit carryforward do not expire. As of December 31, 2022, there were gross federal NOLs of $216.3 million, gross state NOLs of $4.5 million, federal tax credit carryforward of $30.2 million, and state tax credit carryforward of $1.3 million. The federal tax credit carryforward will expire in 2040. The Company files federal, foreign and state income tax returns and, in the normal course of business, the Company is subject to examination by these taxing authorities. All periods since Inception are subject to examination by these taxing authorities, where applicable. There are currently no pending income tax examinations.

Pursuant to Section 382 of the Internal Revenue Code, certain substantial changes in the Company's ownership may result in a limitation on the amount of NOL carryforwards and tax credit carryforwards that may be used in future years. Utilization of the NOL and tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company has completed studies to assess whether an ownership change has occurred through December 31, 2023. Based on these analyses, several ownership changes were identified in 2020 and an additional ownership change occurred in 2023. As a result of the ownership shift that occurred in August 2023, the Company has determined that $217.9 million of its gross federal NOLs are subject to an annual utilization limitation of $3.1 million, which can be increased in the five year period post change date for any realized built-in gain. Additionally, there were $27.1 million of research credits that will expire due to such limitations, resulting in a write-off of the related deferred tax assets and reversal of the corresponding uncertain tax positions and valuation allowance in 2023. The Company will continue to monitor equity movement and its impact on the utilization of the NOLs and credits as the Company could experience additional ownership changes subsequent to December 31, 2023, which may result in additional limitations on the utilization of NOL carryforwards and credits.