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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

Note 6. Income Taxes

Loss before income taxes are as follows (in thousands):

 

 

 

Year Ended

December 31,

 

 

 

2021

 

 

2020

 

Losses before income taxes:

 

 

 

 

 

 

 

 

U.S.

 

$

(37,055

)

 

$

(23,408

)

Non-U.S.

 

 

195

 

 

 

193

 

Total

 

$

(36,860

)

 

$

(23,215

)

 

The provision (benefit) for income taxes are as follows (in thousands):

 

 

 

Year Ended

December 31,

 

 

 

2021

 

 

2020

 

Current:

 

 

 

 

 

 

 

 

Federal

 

$

—

 

 

$

—

 

State

 

 

—

 

 

 

—

 

Foreign

 

 

—

 

 

 

—

 

 

 

 

—

 

 

 

—

 

Deferred:

 

 

 

 

 

 

 

 

Federal

 

 

(2,746

)

 

 

(404

)

State

 

 

392

 

 

 

—

 

Foreign

 

 

—

 

 

 

—

 

 

 

 

(2,354

)

 

 

(404

)

Provision (benefit) for income taxes

 

$

(2,354

)

 

$

(404

)

 

The Company is subject to income taxes under U.S. tax laws.  The Company is subject to an Israeli corporate tax rate of 23% in 2020 and thereafter. The Company was subject to a blended U.S. tax rate (federal as well as state corporate tax) of 21% in 2021 and 2020.

Significant judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. A valuation allowance is established when it is more likely than not the future realization of all or some of the deferred tax assets will not be achieved. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis, and includes a review of all available positive and negative evidence. Factors reviewed include projections of pre-tax book income for the foreseeable future, determination of cumulative pre-tax book income after permanent differences, earnings history, and reliability of forecasting.

Based on its review, the Company concluded that it was more likely than not that they would not realize the benefit of a portion of its deferred tax assets in the future. This conclusion was based on historical and projected operating performance, as well as the Company’s expectation that its operations will not generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets within the statutory carryover periods. Therefore, the Company has a valuation allowance on its deferred tax assets as of December 31, 2021.

The Company will continue to assess the need for a valuation allowance on its deferred tax assets by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the statement of operations for the period that the adjustment is determined to be required.

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

 

 

 

Year Ended

December 31,

 

 

 

2021

 

 

2020

 

Statutory Federal income tax rate

 

$

(7,741

)

 

$

(4,875

)

State income taxes, net of Federal tax benefits

 

 

(445

)

 

 

—

 

Tax credits

 

 

(651

)

 

 

(215

)

Change in warrant fair market value

 

 

—

 

 

 

1,014

 

Stock-based compensation

 

 

651

 

 

 

252

 

Goodwill impairment

 

 

—

 

 

 

—

 

Permanent items

 

 

2

 

 

 

627

 

Section 382 limitation on net operating losses and credits

 

 

—

 

 

 

10,562

 

State rate differential

 

 

235

 

 

 

—

 

NOL true-up

 

 

(991

)

 

 

—

 

Other

 

 

146

 

 

 

89

 

Change in valuation allowance

 

 

6,440

 

 

 

(7,858

)

Total provision (benefit) for income taxes

 

$

(2,354

)

 

$

(404

)

 

 

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2021 and 2020 consisted of the following (in thousands):

 

 

 

Year Ended

December 31,

 

 

 

2021

 

 

2020

 

Net operating loss carryforwards

 

$

12,531

 

 

$

5,151

 

Research and development tax credits

 

 

1,356

 

 

 

705

 

Accruals and reserves

 

 

296

 

 

 

14

 

Stock compensation

 

 

1,867

 

 

 

802

 

Depreciation and amortization

 

 

1,713

 

 

 

1,905

 

Lease liability

 

 

171

 

 

 

30

 

Total deferred tax assets

 

 

17,934

 

 

 

8,607

 

Right-of-use asset

 

 

(171

)

 

 

(29

)

Acquired IPR&D

 

 

(7,192

)

 

 

(6,801

)

Total deferred tax liabilities

 

 

(7,363

)

 

 

(6,830

)

Less: valuation allowance

 

 

(12,323

)

 

 

(5,883

)

Net deferred tax liabilities

 

$

(1,752

)

 

$

(4,106

)

 

The following table reconciles the beginning and ending amounts of unrecognized tax benefits for the years presented (in thousands):

 

 

 

Year Ended

December 31,

 

 

 

2021

 

 

2020

 

Gross unrecognized tax benefits at the beginning of the year

 

$

764

 

 

$

548

 

Additions from tax positions taken in the current year

 

 

712

 

 

 

233

 

Additions from tax positions taken in prior years

 

 

—

 

 

 

531

 

Reductions from tax positions taken in prior years

 

 

(7

)

 

 

(548

)

Tax settlements

 

 

—

 

 

 

—

 

Gross unrecognized tax benefits at the end of the year

 

$

1,469

 

 

$

764

 

The deferred income tax assets have been offset by a valuation allowance, as realization is dependent on future earnings, if any, the timing and amount of which are uncertain. The net valuation allowance increased by $6.4 million from December 31, 2020 to December 31, 2021. The net valuation allowance decreased by $5.1 million from December 31, 2019 to December 31, 2020.

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood, and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does not believe that it is more likely than not that the deferred tax assets will be realized; accordingly, a valuation allowance has been established.

As of December 31, 2021 and 2020, the Company had federal net operating loss carryforwards of approximately $46.9 million and $14.4 million, respectively, available to reduce future taxable income. As of December 31, 2021 and 2020, the Company also has state net operating loss carryforwards of $15.0 million and $6.2 million, respectively. Both the federal and state net operating loss carryforwards incurred before 2018 begin expiring in 2035 if not utilized. The federal net operating losses incurred since 2018 of $46.1 million do not expire. The state net operating losses begin to expire in 2035. As of December 31, 2021 and 2020, the Company had Israeli net operating losses of $7.9 million and $7.9 million, respectively, which carryforward indefinitely.

As of December 31, 2021 and 2020, the Company had federal research and development tax credit carryforwards of approximately $1.9 million and $1.0 million, respectively. If not utilized, the carryforwards will begin expiring in 2036. As of December 31, 2021 and 2020, the Company has state research and development credit carryforwards or approximately $1.1 million and $0.6 million, respectively, which will begin expiring in 2030 if not utilized.

Pursuant to Internal Revenue Code (“IRC) Sections 382 and 383, annual use of the Company’s net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate.

The Company’s ability to use its remaining net operating loss and tax credit carryforwards may be further limited if the Company experiences a Section 382 ownership change in connection with future changes in our stock ownership.

In the United States, the Company files income tax returns in the U.S. Federal jurisdiction, California and Massachusetts. The Company’s tax years for 2017 and forward are subject to examination by the Federal and California tax authorities due to the carryforward of unutilized net operating losses and research and development credits.

The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. There was no accrued interest and penalties associated with uncertain tax positions as of December 31, 2021 and 2020. The Company has not recorded any interest or penalties in 2021 or 2020.