Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.23.1
Income Taxes
12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

13. Income Taxes

No provision for income taxes was recorded for the years ended December 31, 2022 and 2021. The Company has incurred net operating losses only in the United States since its inception. The Company has not reflected any benefit of such net operating loss carryforwards in the financial statements.

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

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

Federal statutory income tax rate ate

 

 

21.00

%

 

 

21.00

%

State taxes

 

 

1.10

 

 

1.94

 

Others

 

 

(0.69

)

 

 

(0.26

)

Research and development credits

 

 

1.11

 

 

 

1.01

 

Cancellation of debt income

 

 

 

 

 

 

Tranche liability

 

 

 

 

 

(3.06

)

Interest expense

 

 

 

 

 

 

Stock-based compensation

 

 

(0.97

)

 

 

(0.96

)

Change in valuation allowance

 

 

(21.55

)

 

 

(19.67

)

Provision for taxes

 

 

0.00

%

 

 

0.00

%

Net deferred tax assets and liabilities consisted of the following (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

Deferred tax assets:

 

 

 

 

 

 

Net operating losses - non-current

 

$

15,940

 

 

$

12,006

 

Capitalized R&D

 

 

13,815

 

 

 

 

General business credit - non-current

 

 

5,699

 

 

 

2,682

 

Operating lease right-of-use assets

 

 

1,220

 

 

 

2,368

 

Stock based compensation

 

 

1,703

 

 

 

784

 

Accruals and reserves

 

 

735

 

 

 

525

 

Fixed assets

 

 

170

 

 

 

396

 

Other

 

 

3

 

 

 

2

 

Gross deferred tax assets

 

 

39,285

 

 

 

18,763

 

Valuation allowance

 

 

(38,110

)

 

 

(16,332

)

Net deferred tax assets

 

 

1,175

 

 

 

2,431

 

Fixed asset basis

 

 

 

 

 

 

Operating lease liabilities

 

 

(1,175

)

 

 

(2,431

)

Other

 

 

 

 

 

 

Gross deferred tax liabilities

 

 

(1,175

)

 

 

(2,431

)

Valuation allowance

 

$

 

 

$

 

Net operating losses and tax credit carryforwards were as follows as of December 31, 2022 (dollars in thousands):

 

 

 

Year Ended December 31, 2022

 

 

Amount

 

 

Expiration Years

Net operating losses, federal (starting from January 1, 2018)

 

$

75,730

 

 

Do Not Expire

Net operating losses, state

 

 

3,195

 

 

2039 - 2042

Tax credits, federal

 

 

5,309

 

 

2041 - 2042

Tax credits, state

 

 

592

 

 

Do Not Expire

 

Utilization of the net operating loss carryforwards and research credit carryforwards may be subject to an annual limitation due to the ownership percentage change limitations provided by the Internal Revenue Code, as amended, (“IRC”), and similar state provisions. Annual limitations may result in the expiration of the net operating losses and tax credit carryforwards before they are utilized. The Company did not perform an IRC Section 382 analysis and any previous ownership changes may result in a limitation that will reduce the total amount of net operating loss and tax credit carryforwards disclosed that can be utilized. Subsequent ownership changes may affect the limitation in future years.

During the years ended December 31, 2022 and 2021, the Company recorded a full valuation allowance on federal and state deferred balances since management does not forecast the Company to be in a profitable position in the near future. Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2022 and 2021 related primarily to the increases in net operating loss carryforwards and research and development tax credit carryforwards and were as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

Valuation allowance at the beginning of the year

 

$

16,332

 

 

$

2,414

 

Increases recorded to income tax provision

 

 

21,778

 

 

 

13,918

 

Valuation allowance at the end of the year

 

$

38,110

 

 

$

16,332

 

The Company’s U.S. federal and state income tax returns are generally subject to tax examinations for the tax years from inception through December 31, 2021. There are currently no pending income tax examinations. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state tax authorities to the extent utilized in a future period.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

Balance at beginning of year

 

$

1,407

 

 

$

 

Additions based on tax positions related to current year

 

 

1,862

 

 

 

1,258

 

Increase (reduction) for prior period positions

 

 

(568

)

 

 

149

 

Unrecognized tax benefit-December 31

 

$

2,701

 

 

$

1,407

 

The entire amount of the unrecognized tax benefits would not impact the Company’s effective tax rate if recognized. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. The Company has elected to include interest and penalties as a component of tax expense. During the years ended December 31, 2022 and 2021, the Company did not recognize accrued interest and penalties related to unrecognized tax benefits. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease during the next 12 months.