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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

12. Income Taxes

The components of the (benefit) provision for income taxes were as follows for the years ended December 31, 2024 and 2023 (in thousands):

 

 

Years Ended December 31,

 

 

2024

 

 

2023

 

Current:

 

 

 

 

 

 

Federal

 

$

(7

)

 

$

200

 

State

 

 

—

 

 

 

—

 

Total current

 

 

(7

)

 

 

200

 

Deferred:

 

 

 

 

 

 

Federal

 

 

(491

)

 

 

491

 

State

 

 

—

 

 

 

—

 

Total deferred

 

 

(491

)

 

 

491

 

(Benefit) provision for income taxes

 

$

(498

)

 

$

691

 

 

For the year ended December 31, 2024, the Company recorded an income tax benefit of $0.5 million. For the year ended December 31, 2023, the Company recorded income tax expense of $0.7 million.

A reconciliation of the Company’s effective tax rate to the statutory U.S. federal rate is as follows:

 

 

Years Ended December 31,

 

 

2024

 

 

2023

 

U.S. federal taxes at statutory rate

 

 

21.0

%

 

 

21.0

%

State tax, net of federal benefit

 

 

8.0

 

 

 

(34.2

)

Stock compensation

 

 

(0.7

)

 

 

6.9

 

Tax credits

 

 

1.5

 

 

 

(19.1

)

Change in valuation allowance

 

 

(29.0

)

 

 

39.5

 

Other

 

 

(0.1

)

 

 

0.1

 

Total effective income tax rate

 

 

0.7

%

 

 

14.2

%

 

Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The types of temporary differences that give rise to significant portions of the Company’s deferred income tax assets and liabilities are set out below (in thousands):

 

 

Years Ended December 31,

 

 

2024

 

 

2023

 

Net operating loss carryforwards

 

$

7,122

 

 

$

3,940

 

Research and development credits

 

 

4,102

 

 

 

2,338

 

Lease liability

 

 

7,129

 

 

 

3,516

 

Stock-based compensation

 

 

61

 

 

 

9

 

Accrued liabilities

 

 

1,163

 

 

 

841

 

Sec 174 capitalized research and development costs

 

 

20,855

 

 

 

11,313

 

Total deferred tax assets before valuation allowance

 

 

40,432

 

 

 

21,957

 

Valuation allowance

 

 

(33,061

)

 

 

(12,127

)

Total deferred tax assets

 

 

7,371

 

 

 

9,830

 

Property and equipment

 

 

(766

)

 

 

(521

)

Right-of-use assets

 

 

(6,605

)

 

 

(3,504

)

Sale of non-financial asset

 

—

 

 

 

(6,296

)

Total deferred tax liabilities

 

 

(7,371

)

 

 

(10,321

)

Net deferred income tax liabilities

 

$

—

 

 

$

(491

)

 

The Company has established a valuation allowance for the amount of deferred tax assets that are not more likely than not be realized. Management considered all available evidence, both positive and negative, including but not limited to the Company’s historical operating results, income or loss in recent periods, cumulative losses in recent years, forecasted earnings, future taxable

income, and significant risk and uncertainty related to forecasts, and concluded the deferred tax assets are not more likely than not to be realized. The net change in the total valuation allowance for the years ended December 31, 2024 and 2023 was an increase of $20.9 million and $1.9 million, respectively.

As of December 31, 2024, the Company had $13.2 million of federal net operating loss carryforwards and $75.0 million of state net operating loss carryforwards, available to reduce future taxable income. Of the federal net operating loss carryforwards, $13.2 million will carryforward indefinitely. The state net operating loss carryforwards will begin to expire in 2041, if not utilized.

As of December 31, 2024, the Company had federal research and development tax credits carryforward of $4.0 million and state research and development tax credits carryforward of $2.9 million, available to reduce future income taxes. The federal research and development tax credits will begin to expire in 2040 if not utilized. The state research and development tax credits have no expiration date.

Internal Revenue Code section 382 (“IRC Section 382”) places a limitation (the “Section 382 Limitation”) on the amount of taxable income that can be offset by net operating loss (“NOL”) carryforwards after a change in control (generally greater than 50% change in ownership) of a loss corporation. California has similar rules. When an ownership change occurs, IRC Section 382 limits the use of NOLs and credits in subsequent periods based on the annual 382 limitations. The annual 382 limitations may limit the full use of available tax attributes in one year but the identified ownership changes may not result in expiration of tax attributes for use prior to expiration of their respective carryforward periods. The Company performed a Section 382 analysis through the year ended December 31, 2024 and determined there were ownership changes in 2021 and 2023 that resulted in 382 limitations limiting the full use of carryover attributes in 2024. The ownership changes did not result in a reduction of its net operating loss or in its research and development credit carryforwards expiring unused. Accordingly, none of the tax attributes have been reduced but limited the full use in 2024. If additional ownership change occurs, the utilization of net operating loss and credit carryforwards could be significantly reduced.

A reconciliation of the beginning and ending unrecognized tax benefit amount is as follows (in thousands):

 

 

Years Ended December 31,

 

 

2024

 

 

2023

 

Balance at the beginning of the year

 

$

2,529

 

 

$

1,828

 

Additions based on tax positions related to current year

 

 

998

 

 

 

728

 

Adjustment based on tax positions related to prior years

 

 

40

 

 

 

(27

)

Balance at end of the year

 

$

3,567

 

 

$

2,529

 

 

The reversal of the uncertain tax benefits would not impact the Company’s effective tax rate as the Company continues to maintain a full valuation allowance against its deferred tax assets.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the years ended December 31, 2024 and 2023, the Company did not recognize accrued interest and penalties related to unrecognized tax benefits.

The Company files income taxes in the U.S. federal jurisdiction, the state of California and various other U.S. states. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions. All income tax returns will remain open for examination by the federal, state and foreign authorities for three or four years, from the date of utilization of any NOLs or credits.