Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Pre-tax loss before income taxes was $2,373 and $64,102 for the years ended December 31, 2022 and 2021, respectively, which consists entirely of losses in the U.S. and resulted in $209 and $0 provision for income tax expense during the years then ended, respectively.

Components for the provision for income taxes consist of the following:

	Year Ended December 31,
	2022		2021
Current
Federal	$	115	$	—
State and local	94		—
Total current tax expense	$	209	$	—
Deferred
Federal	$	—	$	—
State and local	—		—
Total deferred tax expense	$	—	$	—
Provision for income tax expense	$	209	$	—

The differences between income taxes computed using the U.S. federal income tax rate and the provision for income taxes are as follows:

	Year Ended December 31,
	2022				2021
Federal income tax expense at statutory rate	$	(498)	21.0	%	$	(13,461)	21.0	%
State income tax expense at statutory rate	(87)		3.7		(4,816)		7.5
Permanent differences	108		(4.6)		245		(0.4)
Research and development credit	(31)		1.3		—		—
Other	(16)		0.7		(32)		—
Change in valuation allowance	733		(30.9)		18,064		(28.1)
	$	209	(8.8)	%	$	—	—	%

The effective tax rate for the year ended December 31, 2022 is attributable to the fact that the Company is subject to the IRC Sec. 174 regulations requiring companies to capitalize certain research and experimental expenditures and IRC Sec. 382 loss limitation rules on the Company's ability to utilize net operating losses to offset the capitalization requirement. The effective income tax rate for the year ended December 31, 2021 was 0% because the Company generated tax losses and provided a full valuation allowance against its deferred tax assets to an amount that is more likely than not to be realized.

The significant components of the Company’s net deferred tax assets are as follows:

	December 31,
	2022		2021
Deferred Tax Assets
Net operating losses	$	36,331	$	42,769
Tax credits	472		3,922
Capitalized R&D expenses	5,795		—
Intangibles	117		134
Accrued expenses	40		1,331
Operating lease liability	2,097		2,253
Equity-based compensation	1,874		1,622
Deferred revenue	—		3,191
Other	56		54
Less: Valuation allowance	(44,145)		(52,392)
Total deferred tax assets	2,637		2,884
Deferred Tax Liabilities
Prepaid expenses	(262)		(308)
Fixed assets and other	(292)		(298)
Right-of-use asset	(2,083)		(2,278)
Total deferred tax liabilities	(2,637)		(2,884)
Deferred taxes, net	$	—	$	—

The Company’s effective income tax rate for the year ended December 31, 2022 is (8.8)%. The Company has recorded a full valuation allowance against its deferred tax assets. This determination is based on significant negative evidence, including:

•Cumulative losses: The Company has been in a significant cumulative loss position since its inception in 2012.

•Projected realization of net operating loss carry forward amounts: Projections of future pre-tax book loss and taxable losses based on the Company's recent actual performance and current industry data indicate it is more likely than not that the benefits will not be recognized.

At December 31, 2022, the Company had a federal net operating loss carryforward of $120,346, which will begin to expire in 2035. At December 31, 2022, the Company had $148,344 of state net operating loss carryforwards which will begin to expire in 2027.

As provided by Section 382 of the Internal Revenue Code of 1986 (“Section 382”), and similar state provisions, utilization of net operating losses and tax credit carryforwards may be subject to substantial annual limitations due to ownership change limitations that have previously occurred or that could occur in the future. Ownership changes may limit the amount of net operating losses and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions that increase the ownership of five percent stockholders in the stock of a corporation by more than 50 percent in the aggregate over a three-year period. The Company completed a review of its changes in ownership through December 31, 2022 and determined that it had experienced an “ownership change” within the meaning of Section 382(g) during the fourth quarter of 2022. This ownership change has and will continue to subject the Company’s net operating loss carryforwards to an annual limitation, which will significantly restrict the Company’s ability to use them to offset its taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate.

The Company determined that at the date of the 2022 ownership change, it had a net unrealized built-in loss ("NUBIL"). The NUBIL was determined based on the difference between the fair market value of the Company’s assets and their tax basis at the ownership change date. Because of the NUBIL, certain deductions recognized during the five-year period beginning on the date of the Section 382 ownership change (the “recognition period”) are subject to the same limitation as the net operating loss carryforwards or certain other deductions.

At December 31, 2022 and 2021, the Company had no unrecognized tax benefits. The Company's estimate of the potential outcome of any uncertain tax positions is subject to management's assessment of relevant risks, facts and circumstances existing at that time. The Company evaluates uncertain tax positions to determine if it is more-likely-than-not that they would be sustained upon examination. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes.

The Company is subject to taxation in the U.S. and various state jurisdictions. The Company remains subject to examination by U.S. federal and state tax authorities for the years 2018 through 2022. There are no pending examinations in any jurisdiction.