v3.22.4
INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES

  

13. INCOME TAXES

 

The loss before provision for income taxes consisted of the following (in thousands): 

         
   Year Ended December 31, 
   2022   2021 
Domestic  $(17,441)  $(15,648)
International   –    – 
Total  $(17,441)  $(15,648)

  

The Company had $0 and $66,000 of current income tax expense for the years ended December 31, 2022 and 2021, respectively. The income tax expense for 2022 related to taxes due to a foreign country arising from withholding taxes imposed on payments received for revenue. The Company accounts for income taxes in accordance with ASC 740, which 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 arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a full valuation allowance. The valuation allowance increased by approximately $4.5 million during the year ended December 31, 2022 and decreased by approximately $1.8 million during the year ended December 31, 2021.

   

The Company’s deferred tax assets are as follows (in thousands): 

         
   Year Ended December 31, 
   2022   2021 
Deferred tax assets:          
Net operating loss carryforwards  $25,309   $23,097 
Tax credit   2,197    1,883 
Fixed assets and intangibles   798    978 
Stock compensation   1,052    799 
Accruals and other   212    132 
Lease liability   1,079    1,430 
Capitalized research and development   1,797    – 
Total deferred tax assets   32,444    28,319 
Deferred tax liabilities:          
Right of use asset   (1,076)   (1,477)
Total deferred tax assets   (1,076)   (1,477)
Valuation allowance   (31,368)   (26,842)
Net deferred tax asset  $–   $– 

   

Net operating losses and tax credit carryforwards as of December 31, 2022, are as follows (in thousands): 

           
    Amount     Expiration in years
Net operating losses, federal   $ 75,247     No expiration
Net operating losses, federal   $ 34,791     2027-2037
Net operating losses, state   $ 38,973     2030-2042
Tax credits, federal   $ 1,835     2027-2042
Tax credits, state   $ 756     No expiration
Tax credits, state   $ 894     2022-2037

  

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

         
   Year ending December 31, 
   2022   2021 
Statutory rate   21.00%    21.00% 
State rate   3.51%    2.77% 
Change in valuation allowance   (25.95)%   11.41% 
Change in tax credits   0.70%    4.54% 
Foreign withholding tax   –%    (0.33)%
Section 382 limitation   –%    (51.59)%
Section 162(m) limitation   (0.47)%   (9.12)%
Stock based compensation excess windfall   1.20%    20.89% 
Total   –%    (0.42)%

 

Utilization of U.S. net operating losses and tax credit carryforwards may be limited by “ownership change” rules, as defined in Section 382 and Section 383 of the Internal Revenue Code. Similar rules may apply under state tax laws. Under those sections of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change attributes, such as research tax credits, to offset its post-change income or tax may be limited. In general, an “ownership change” will occur if there is a cumulative change in ownership by “5% stockholders” that exceeds 50 percentage points over a rolling three-year period.

 

During the year ended 2021, the Company performed an analysis to assess whether an “ownership change,” as defined by Section 382 of the Code, has occurred from its inception through December 31, 2021. Based on this analysis, the Company has experienced “ownership changes,” limiting the utilization of the net operating loss carryforwards or research and development tax credit carryforwards under Section 382 of the Code. The limitation is calculated 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 applying additional adjustments, as required. As a result of the analysis, the Company has determined that approximately $31 million of federal net operating loss and $0.7 million of federal R&D credit carryforwards are limited and will expire unutilized. Additionally, approximately $2.6 million of state net operating loss and $0.5 million of state tax credits are also limited and will expire unutilized. The Company’s tax disclosures as of December 31, 2022 and 2021 reflect the impairment of the above-mentioned tax attributes.

  

The Company establishes reserves for uncertain tax positions based on the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2022 and 2021, respectively, the Company has no accrued interest or penalties related to uncertain tax positions.

 

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. In the normal course of business, the Company is subject to examination by their respective taxing authorities. The Company is not currently under audit by the Internal Revenue Service or other similar state or local authority. The statute of limitations remains effectively open for all tax years since inception (2007). Tax years outside the normal statute of limitations remain open to examination by tax authorities due to tax attributes generated in earlier years which have been carried forward and may be examined and adjusted in subsequent years when utilized.

   

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits for the years ended December 31, 2022 and 2021 (in thousands):

         
   2022   2021 
January 1 – unrecognized tax benefits  $896   $1,070 
Increases (decreases) – prior year tax positions   (1)   (480)
Increases – current year tax positions   151    306 
December 31 - unrecognized tax benefits  $1,046   $896 

  

The following table summarizes the activity in the Company’s Valuation Allowance and Qualifying Accounts for the years ended December 31, 2022 and 2021 (in thousands):

 

                 
  

Balance at

Beginning

of Year

   Additions   Deductions  

Balance

at End of

Year

 
Deferred tax assets valuation allowance                    
Year ended December 31, 2022  $26,842   $4,636   $110   $31,368 
Year ended December 31, 2021  $28,627   $6,125   $7,910   $26,842