XML 63 R20.htm IDEA: XBRL DOCUMENT v3.23.1
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

13. Income Taxes

During the years ended December 31, 2022 and 2021, the Company recorded no current or deferred income tax expenses or benefits as the Company has incurred losses since inception and has provided a full valuation allowance against its deferred tax assets.

A reconciliation of the expected income tax benefit computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended December 31, 2022 and 2021:

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

Income tax computed at federal statutory rate %

 

 

21.0

%

 

 

21.0

%

State taxes, net of federal benefit

 

 

5.6

 

 

 

5.7

 

Change in valuation allowance

 

 

(26.6

)

 

 

(27.7

)

Research and development credit carryovers

 

 

1.7

 

 

 

1.9

 

Permanent differences

 

 

(1.7

)

 

 

(0.9

)

Effective income tax rate %

 

 

0.0

%

 

 

0.0

%

 

The Company's effective tax rate was 0% for the years ended December 31, 2022 and 2021, as a result of the valuation allowance that eliminates the company's net deferred tax assets.

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. Significant components of the Company’s net deferred tax assets as of December 31, 2022 and 2021 are as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

Deferred tax assets:

 

 

 

 

 

 

Net operating losses

 

$

13,108

 

 

$

12,918

 

Intangibles

 

 

69

 

 

 

75

 

Tax credit carryforwards

 

 

3,674

 

 

 

1,648

 

Derivative

 

 

1,455

 

 

 

1,577

 

Stock-based compensation

 

 

2,645

 

 

 

1,003

 

Reserves and accruals

 

 

1,105

 

 

 

804

 

Capitalized research expenditures

 

 

20,059

 

 

 

—

 

License fees

 

 

14,235

 

 

 

7,716

 

Operating lease liability

 

 

5,107

 

 

 

45

 

Other

 

 

29

 

 

 

25

 

Total deferred tax assets before valuation allowance

 

 

61,486

 

 

 

25,811

 

Less: valuation allowance

 

 

(57,812

)

 

 

(25,748

)

Total deferred tax assets

 

$

3,674

 

 

$

63

 

Deferred tax liabilities:

 

 

 

 

 

 

Operating lease ROU assets

 

 

(3,674

)

 

 

(63

)

Net deferred tax asset

 

$

—

 

 

$

—

 

 

As of December 31, 2022, the Company's federal and state net operating losses ("NOL") in the United States were $10.1 million ($48.0 million before tax) and $3.0 million ($48.1 million before tax) respectively. The federal net operating loss carryforwards in the United States can be carried forward indefinitely but may be subject to annual usage limitations to the extent certain substantial changes in the entity's ownership occur. The state net operating loss carryforwards begin expiring in 2039. In addition, as of December 31, 2022, the Company had $2.5 million and $1.2 million of federal and state credit carryovers which begin to expire in 2039. These loss and credit carryforwards are subject to review and possible adjustment by the appropriate taxing authorities.

 

The Company assesses the realizability of the deferred tax assets at each balance sheet date based on the available positive and negative evidence in order to determine the amount which is more likely than not to be realized and records a valuation allowance as necessary. Due to the Company's cumulative loss position which provides significant negative evidence, which is difficult to overcome, the Company has recorded a valuation allowance of $57.8 million as of December 31, 2022, representing the portion of the deferred tax asset that is not more likely than not to be realized. For the years ended December 31, 2022 and 2021, the valuation allowance for deferred tax assets increased by $32.2 million and $21.4 million, respectively. The amount of the deferred tax asset considered realizable, could be adjusted for future factors that would impact the assessment of the objective and subjective evidence. The Company will continue to assess the realizability of deferred tax assets at each balance sheet date in order to determine the proper amount, if any, required for a valuation allowance.

The Tax Cuts and Jobs Act contained a provision which requires the capitalization of Section 174 costs incurred in the years beginning on or after January 1, 2022. Section 174 costs are expenditures which represent research and development costs that are incident to the development or improvement of a product, process, formula, invention, computer software or technique. This provision changes the treatment of Section 174 costs such that the expenditures are no longer allowed as an immediate deduction but rather must be capitalized and amortized. We have included the impact of this provision, which results in a deferred tax asset of approximately $20.1 million as of December 31, 2022.

The U.S. tax attributes may be subject to an annual limitation under Section 382 of the Internal Revenue Code of 1986 (the “Code”), and similar state provisions if the Company experiences one or more ownership changes, which would limit the amount of the tax attributes that can be utilized to offset future taxable income. In general, an ownership change as defined by Section 382, results from the transactions increasing ownership of certain stockholders or public groups in the stock of the corporation of more than fifty percentage points over a three-year period. If a change in ownership occurs in the future, the net operating loss and research and development credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate.

The Company is subject to tax and will continue to file federal income tax returns in the United States as well as in certain state and local jurisdictions. The Company is subject to tax examinations for tax years ended December 31, 2019 and forward in all applicable income tax jurisdictions. Tax audits and examinations can involve complex issues, interpretations and judgements. The resolution of matters may span multiple years particularly if subject to litigation or negotiation. The Company believes that it has appropriately recorded its tax position using reasonable estimates and assumptions, however the potential tax benefits may impact the results of operations or cashflows in the period of resolution, settlement, or when the statutes of limitations expire. The Company does not currently have any reserves related to unrecognized tax benefits.