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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

11. Income Taxes

 

Total loss before income taxes for the years ended December 31, 2022, 2021 and 2020 did not include a foreign component.

 

The components of the provision expense (benefit) were as follows for the years ended December 31, 2022, 2021, and 2020 (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Current income tax expense (benefit):

 

 

 

 

 

 

 

 

 

Federal

 

$

—

 

 

$

—

 

 

$

—

 

State

 

 

4

 

 

 

5

 

 

 

(53

)

Total current

 

 

4

 

 

 

5

 

 

 

(53

)

Deferred income tax expense (benefit):

 

 

 

 

 

 

 

 

 

Federal

 

 

(10,396

)

 

 

(12,981

)

 

 

(3,970

)

State

 

 

(1,851

)

 

 

(2,472

)

 

 

(130

)

Total deferred

 

 

(12,247

)

 

 

(15,453

)

 

 

(4,100

)

Changes in tax rate

 

 

1,347

 

 

 

31

 

 

 

93

 

Changes in valuation allowance

 

 

10,900

 

 

 

15,422

 

 

 

4,007

 

Total income tax benefit from continuing operations

 

$

4

 

 

$

5

 

 

$

(53

)

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

 

The components of the Company’s net deferred tax liabilities and related valuation allowance are as follows as of December 31, 2022 and 2021 (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$

48,984

 

 

$

39,714

 

Debt related interest

 

 

15,272

 

 

 

12,205

 

Capitalized research and development

 

 

2,014

 

 

 

—

 

Tax credit carryforwards

 

 

1,630

 

 

 

1,630

 

Stock based compensation

 

 

1,602

 

 

 

3,233

 

Accrued expense and reserves

 

 

568

 

 

 

1,517

 

Operating lease liabilities

 

 

315

 

 

 

404

 

Other

 

 

77

 

 

 

236

 

Total deferred tax assets

 

 

70,462

 

 

 

58,939

 

Less valuation allowance

 

 

(67,543

)

 

 

(56,643

)

Total deferred tax assets

 

 

2,919

 

 

 

2,296

 

Deferred tax liabilities:

 

 

 

 

 

 

Intangible assets

 

 

(2,666

)

 

 

(1,975

)

Operating lease right-of-use assets

 

 

(253

)

 

 

(319

)

Other

 

 

—

 

 

 

(2

)

Total deferred tax liabilities

 

 

(2,919

)

 

 

(2,296

)

Net deferred tax liabilities

 

$

—

 

 

$

—

 

 

The reconciliation between U.S. federal income taxes at the statutory rate and the Company’s provision for income taxes are as follows for the years ended December 31, 2022, 2021, and 2020 (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

 

2021

 

 

2020

 

Income tax benefit at federal statutory rate

 

$

(4,905

)

 

$

(19,150

)

 

$

(9,408

)

Valuation allowance

 

 

10,900

 

 

 

15,422

 

 

 

4,007

 

Debt discount and interest limitation

 

 

(9,293

)

 

 

8,954

 

 

 

(806

)

Compensation expense

 

 

2,469

 

 

 

224

 

 

 

166

 

Acquisition related charges

 

 

992

 

 

 

75

 

 

 

63

 

Prior year true-up and carryback

 

 

(713

)

 

 

(3,968

)

 

 

6,955

 

State, net of federal tax benefit

 

 

(174

)

 

 

(2,545

)

 

 

(1,164

)

Income tax credits and incentives

 

 

—

 

 

 

—

 

 

 

(101

)

Other

 

 

728

 

 

 

993

 

 

 

235

 

Income tax benefit

 

$

4

 

 

$

5

 

 

$

(53

)

 

The Company has evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that the deferred tax assets will not be realized. Due to such uncertainties surrounding the realization of the deferred tax assets, the Company maintains a valuation allowance of $67.5 million against its deferred tax assets as of December 31, 2022. Realization of the deferred tax assets will be primarily dependent upon the Company's ability to generate sufficient taxable income prior to the expiration of its net operating losses.

 

As of December 31, 2022, the Company had $205.6 million and $106.9 million of federal and state net operating loss carryforwards, respectively. The net operating loss carryforwards begin to expire in 2035 and 2034 for federal and

state, respectively. The Company also had federal research and development income tax credits of $2.0 million which will begin to expire in 2035.

 

Internal Revenue Code Section 382 rules apply to limit a corporation's ability to utilize existing net operating loss and tax credit carryforwards once the corporation experiences an ownership change as defined in Section 382. For the years ended December 31, 2022 and 2021, there was no impact of such limitations on the Company’s income tax provision.

 

The Company is subject to taxation in U.S. federal and state tax jurisdictions. All of the Company’s tax years will remain open for three years for examination by the federal and state tax authorities from the date of utilizations of net operating loss. There are no active tax compliance audits as of December 31, 2022.

A reconciliation of the beginning and ending amount of unrecognized tax expense (benefits) is as follows for the years ended December 31, 2022, 2021, and 2020 (in thousands):

 

 

 

2022

 

 

2021

 

 

2020

 

Beginning balance

 

$

408

 

 

$

406

 

 

$

385

 

Increase related to prior year tax positions

 

 

—

 

 

 

2

 

 

 

—

 

Decrease related to prior year tax positions

 

 

—

 

 

 

—

 

 

 

(4

)

Increase related to current year tax positions

 

 

—

 

 

 

—

 

 

 

25

 

Ending balance

 

$

408

 

 

$

408

 

 

$

406

 

 

At December 31, 2022, 2021, and 2020, $0.4 million, $0.4 million and $0.4 million, respectively, of the Company’s total unrecognized tax benefits, if recognized, would impact the effective tax rate, however given the full valuation allowance in the jurisdiction in which the unrecognized tax benefits relate to, the impact on the effective tax rate would be nil.

 

The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. No interest or penalties have been recognized as of and for the periods ended December 31, 2022, 2021, and 2020.

The Company believes that no material amount of the liabilities for uncertain tax positions are expected to reverse within 12 months of December 31, 2022.