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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes
13.
INCOME TAXES

The components of the provision for income taxes are summarized as follows (in thousands):

 

 

Year ended December 31,

 

 

 

2024

 

 

2023

 

Current:

 

 

 

 

 

 

Federal

 

$

—

 

 

$

—

 

State

 

 

—

 

 

 

—

 

Foreign

 

 

346

 

 

 

—

 

Total current

 

 

346

 

 

 

—

 

 

 

 

 

 

 

Deferred:

 

 

 

 

 

 

Federal

 

 

—

 

 

 

—

 

State

 

 

—

 

 

 

—

 

Foreign

 

 

(248

)

 

 

—

 

Total deferred

 

 

(248

)

 

 

—

 

 

 

 

 

 

 

Provision for income taxes

 

$

98

 

 

$

—

 

A reconciliation of the provision for income taxes to the actual income tax expense is as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2024

 

 

2023

 

Federal tax benefit at statutory rate

 

$

(18,166

)

 

$

(18,118

)

State taxes, net of federal benefit

 

 

(2,492

)

 

 

(2,491

)

Change in valuation allowance

 

 

17,136

 

 

 

19,112

 

Stock-based compensation tax deduction over book expense

 

 

4,730

 

 

 

4,012

 

Permanent differences

 

 

33

 

 

 

79

 

Research and development credits

 

 

(2,123

)

 

 

(2,323

)

Executive compensation limitation

 

 

1,926

 

 

 

384

 

Other

 

 

(946

)

 

 

(655

)

Provision for income taxes

 

$

98

 

 

$

—

 

 

Deferred income tax reflects the 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 categories that give rise to significant components of the deferred tax assets as of December 31, 2024 and 2023, are as follows (in thousands):

 

 

December 31,

 

 

 

2024

 

 

2023

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$

50,602

 

 

$

41,212

 

Accruals and reserves

 

 

1,259

 

 

 

1,296

 

Research and development credits

 

 

8,538

 

 

 

6,415

 

Stock-based compensation

 

 

11,408

 

 

 

11,348

 

Lease liabilities

 

 

6,664

 

 

 

7,212

 

Capitalized research and experimentation

 

 

17,879

 

 

 

13,502

 

Fixed assets

 

 

269

 

 

 

—

 

Other

 

 

641

 

 

 

—

 

Gross deferred tax assets

 

 

97,260

 

 

 

80,985

 

Valuation allowance

 

 

(91,163

)

 

 

(74,026

)

 

 

 

 

Deferred tax liabilities:

 

 

 

 

Fixed assets

 

 

—

 

 

 

(411

)

Right-of-use assets

 

 

(5,849

)

 

 

(6,426

)

Other

 

 

—

 

 

 

(122

)

Gross deferred tax liabilities

 

 

(5,849

)

 

 

(6,959

)

Total net deferred tax assets:

 

$

248

 

 

$

—

 

 

The tax benefit of net operating losses, temporary differences, and credit carryforwards are recorded as an asset to the extent that management assesses that realization is more likely than not. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of existing deferred. In the U.S, a significant piece of objective negative evidence evaluated was the cumulative loss incurred since the Company’s incorporation in 2017. Such objective evidence limits the ability to recognize the domestic net deferred tax assets. The amount of the net deferred tax assets considered realizable, could be adjusted as estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence, such as the Company’s projections for growth. For the years ended December 31, 2024 and 2023, the net changes in the net valuation allowance were an increase of $17.1 million and an increase of $19.0 million, respectively.

As of December 31, 2024 and 2023, the Company had federal net operating loss carryforwards of approximately $182.3 million and $148.1 million, respectively, which will carryforward indefinitely for federal tax purposes. At December 31, 2024 and 2023, the Company had state net operating loss carryforwards of approximately $185.7 million and $151.8 million, respectively, which will begin to expire in 2035 for state tax purposes.

As of December 31, 2024 and 2023, the Company had federal research and development credit carryforwards of approximately $7.0 million and $5.1 million, respectively, which begin to expire in 2039 and state research and development credit carryforwards of approximately $5.5 million and $4.3 million, respectively, which will carry forward indefinitely.

Utilization of the Company’s federal and state net operating loss and tax credit carryforwards may be subject to an annual limitation in the event that there is a change in ownership as provided by Section 382 of the Internal Revenue Code and similar state codes. Such limitation could result in a deferral or expiration of the utilization of the net operating loss and tax credit carryforwards. The Company concluded that while ownership changes occurred in 2018, 2020, and 2022, no tax attributes are expected to expire unutilized as a result of the Section 382 limitation.

As of December 31, 2024 and 2023, the Company had unrecognized tax benefits of approximately $3.1 million and $2.4 million, respectively. The amount of unrecognized tax benefits is not expected to significantly change over the next twelve months. No amounts, outside of valuation allowance, would impact the effective tax rate on the continuing operations. The beginning and ending unrecognized tax benefits amounts are as follows (in thousands):

 

 

December 31,

 

 

 

2024

 

 

2023

 

Beginning balance

 

$

2,364

 

 

$

1,586

 

Change related to prior year positions

 

 

—

 

 

 

26

 

Change related to current year positions

 

 

772

 

 

 

752

 

Ending balance

 

$

3,136

 

 

$

2,364

 

 

It is the Company’s policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary. Management determined that no accrual for interest and penalties was required as of December 31, 2024.

The Company files tax returns in the U.S., United Kingdom, and Germany. Domestic tax returns will remain open for examination by the federal and state taxing authorities for three and four years, respectively, from the date of utilization of any net operating loss carryforwards or research and development credits.