Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

12. Income Taxes

Due to its net losses for the years ended December 31, 2023 and 2022, and since it has a full valuation allowance against deferred tax assets, the Company did not record any provision or benefit for income taxes. There were no components of current or deferred federal, state or foreign tax provisions for the year ended December 31, 2023 or 2022.

The difference between income taxes computed using the U.S. federal income statutory tax rate and the provision for income taxes is as follows (in thousands):

		December 31,
		2023			2022
Income taxes at statutory rates		$	(19,912	)	$	(19,085	)
State income tax, net of federal benefit			(4,422	)		(2,615	)
Research credit			(3,945	)		(3,434	)
Change in valuation allowance			26,988			24,423
Permanent items and other			1,291			711
	Income tax expense	$	-		$	-

Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows (in thousands):

	December 31,
	2023			2022
Deferred tax assets:
Net operating loss carryforward	$	54,252		$	40,101
Credits		13,371			9,433
Lease liability		15,193			11,673
Section 174 capitalized research and development		13,765			7,408
Other		5,338			3,972
Total deferred tax assets		101,919			72,587
Valuation allowance		(86,196	)		(59,435	)
Net deferred tax assets		15,723			13,152
Deferred tax liabilities:
Right-of-use lease assets		(13,227	)		(10,983	)
Fixed assets		(2,496	)		(2,169	)
Total deferred tax liabilities		(15,723	)		(13,152	)
Total net deferred taxes	$	-		$	-

At December 31, 2023 the Company had federal and state tax loss carryforwards of approximately $195.3 million and $188.8 million, respectively. The federal net operating loss generated prior to 2018 and state net operating loss carryforwards begin to expire in 2036, if unused. The federal net operating loss carryover includes $191.5 million of net operating losses generated from 2018 through the current period which, under current tax law, will carryover indefinitely.

At December 31, 2023, the Company had federal and state tax credit carry forwards of approximately $9.4 million and $7.7 million, respectively. The Company has not performed a formal research and development credit study with respect to these credits. The federal credits will begin to expire in 2037, if unused, and the state credits carry forward indefinitely.

Due to the Company’s history of losses and uncertainty regarding future earnings, a valuation allowance has been recorded against the Company’s deferred tax assets, as it is more likely than not that such assets will not be realized. The net change in the total valuation allowance for the years ended December 31, 2023 and December 31, 2022 was $26.8 million and $24.6 million, respectively.

Pursuant to Internal Revenue Code of 1986, as amended (“IRC”), specifically IRC §382 and IRC §383, the Company’s ability to use net operating loss and research and development tax credit carryforwards (“tax attribute carryforwards”) to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more than 50% within a three-year testing period. The Company has not completed an ownership change analysis pursuant to IRC Section 382. If ownership changes within the meaning of IRC Section 382 are identified as having occurred, the amount of remaining tax attribute carryforwards available to offset future taxable income and income tax expense in future years may be significantly restricted or eliminated. Any limitation may result in the expiration of a portion of the net operating loss or research credit carryforwards before utilization.

The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more likely than not recognition threshold to be recognized. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest and penalties on the Company’s balance sheets and has not recognized interest and/or penalties in the statements of operations and comprehensive loss for the years ended December 31, 2023 and 2022.

The following table summarizes the changes to the Company’s unrecognized tax benefits for the periods presented (in thousands):

		December 31,
		2023		2022
Balance at beginning of year		$	1,237	$	866
	Increases (decreases) related to prior year tax positions		50		(50	)
	Increases related to current year tax positions		936		421
Balance at end of year		$	2,223	$	1,237

If recognized, these amounts would not affect the Company’s effective tax rate, since they would be offset by an equal corresponding adjustment in the deferred tax asset valuation allowance. The Company does not anticipate there will be a significant change in unrecognized tax benefits within the next twelve months.

The Company is subject to taxation in the United States and various state jurisdictions. All jurisdictions are open to examination for all years since inception. The Company has not been, nor is it currently, under examination by any federal or state tax authority.