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

Note 10. Income Taxes

The Company’s income tax provision for the years ended December 31, 2022 and 2021, consists of the following (in thousands):

Current

 

 

December 31,

 

 

 

2022

 

 

2021

 

Federal

 

$

—

 

 

$

—

 

Foreign

 

 

47

 

 

 

16

 

State

 

 

—

 

 

 

172

 

Provision (benefit) for income taxes

 

$

47

 

 

$

188

 

The Company's components of income/(loss) before the provision for income taxes includes domestic loss of $86.0 million and $63.0 million for the years ended December 31, 2022 and 2021, respectively. Foreign income/(loss) for the year ended December 31, 2022 was a loss of $0.2 million, while the Company recording income of $0.1 million for the year ended December 31, 2021.

Deferred tax assets and liabilities reflect the net tax effect of temporary differences between carrying value of assets and liabilities for financial reporting purposes and the tax basis of these assets and liabilities as measured by income tax law. The income tax effect of temporary differences that give rise to deferred tax assets and (liabilities) consist of the following (in thousands):

 

 

December 31,

 

 

 

2022

 

 

2021

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$

52,616

 

 

$

35,186

 

Deferred compensation

 

 

3,974

 

 

 

1,812

 

Research and development credits

 

 

1,918

 

 

 

1,497

 

Research and development expenses

 

 

1,743

 

 

 

—

 

Disallowed interest expense carryover

 

 

444

 

 

 

—

 

Operating lease liability

 

 

436

 

 

 

405

 

Provision for bad debt

 

 

398

 

 

 

163

 

Other

 

 

144

 

 

 

132

 

Gross deferred tax assets

 

 

61,673

 

 

 

39,195

 

Less: Valuation allowance

 

 

(61,251

)

 

 

(38,804

)

Deferred tax assets, net of valuation allowance

 

 

422

 

 

 

391

 

Operating lease right-of-use assets

 

 

(422

)

 

 

(391

)

Deferred tax liabilities:

 

 

(422

)

 

 

(391

)

Net deferred tax assets

 

$

—

 

 

$

—

 

Internal Revenue Code (IRC) Section 382 limits the use of federal net operating losses and income tax credit carryforwards in certain situations where changes occur in stock ownership of a company. If the Company should have an ownership change of more than 50% of the value of the Company’s capital stock, utilization of the carryforwards could be restricted.

The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows (in thousands):

 

 

December 31,

 

 

 

2022

 

 

2021

 

Tax at statutory federal rate

 

 

21

%

 

 

21

%

State tax, net of federal benefit

 

 

5

%

 

 

5

%

Research and development credit

 

 

1

%

 

 

1

%

Change in valuation allowance

 

 

(26

)%

 

 

(24

)%

Other

 

 

(1

)%

 

 

(3

)%

Effective tax rate

 

 

—

 

 

 

—

 

A valuation allowance is recorded when it is more likely than not that some portion of the deferred tax assets will not be realized. As of each reporting date, the Company's management considers all evidence, both positive and negative, that could impact management's view with regard to future realization of deferred tax assets. As of December 31, 2022, a full valuation allowance for deferred tax assets was recorded as management believes it is not more likely than not that all of the deferred tax assets will be realized. At December 31, 2021 and December 31, 2022, the Company has a net operating loss carryforward for federal income tax purposes of approximately $136.8 million and $204.6 million, respectively. At December 31, 2021 and December 31, 2022, the Company has a net operating loss carryforward for state income tax purposes of approximately $126.6 million and $187.5 million, respectively. Of the $204.6 million of federal net operating loss carryovers, $14.8 million was generated before January 1, 2018 and is subject to a 20-year carryforward period. The remaining $189.9 million can be carried forward indefinitely but is subject to an 80% taxable income limitation. The pre-2018 federal and certain state net operating losses will begin to expire in 2031 and 2032, respectively, if not utilized.

As of December 31, 2022 and 2021, the Company has federal research and development income tax credit carryforwards of approximately $1.5 million and $1.2 million, respectively. As of December 31, 2022 and 2021, the Company has state research and development income tax credit carryforwards of approximately $1.5 million and $0.9 million, respectively. The Federal income tax credits begin to expire in 2032. The California Research and Development credits can be carried forward indefinitely. The total amount of uncertain tax positions ("UTP") on research and development tax credits is $0.7 million and $0.6 million as of December 31, 2022 and 2021, respectively. The Company does not expect any significant change to the UTP balances in the next 12 months.

As of December 31, 2022, the Company has business interest expense carryforwards of $0.4 million. Business interest expense can be carried forward indefinitely.

The following table summarizes the activity related to the unrecognized tax benefits (in thousands):

 

 

December 31,

 

 

 

2022

 

 

2021

 

Unrecognized tax benefits at the beginning of the year

 

$

580

 

 

$

417

 

Additions based on tax positions related to the current year

 

 

161

 

 

 

163

 

 

 

 

 

 

 

 

Additions for tax positions of prior years

 

 

—

 

 

 

—

 

Unrecognized tax benefits at the end of the year

 

$

741

 

 

$

580

 

The Company does not have any material uncertain tax positions as of December 31, 2022 and does not expect any significant change to such balances in the next twelve months.

The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception. Due to the history of net operating losses, the Company’s federal and state tax returns remain open to examination by the tax authorities