Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

11. Income Taxes

Loss before income taxes consisted of the following components (in thousands):

	Year Ended December 31,
	2023		2022
United States	$	(68,182)	$	(32,228)
Foreign		(863)		(4,689)
Total	$	(69,045)	$	(36,917)

Significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):

	December 31,
	2023		2022
Deferred tax assets:
Net operating loss carryforwards	$	46,591	$	42,525
Capitalized research and development		21,431		19,103
Stock-based compensation		2,083		3,192
Depreciation and amortization		856		929
Lease accounting		13,899		13,660
Other		1,907		1,452
Total deferred tax assets before valuation allowance		86,767		80,861
Less: valuation allowance		(75,166)		(68,818)
Total deferred tax assets after valuation allowance		11,601		12,043
Deferred tax liabilities:
Right-of-use asset		(11,510)		(12,043)
In-process research and development		(3,077)		(3,077)
Other		(91)		-
Total deferred tax liabilities		(14,678)		(15,120)
Net deferred tax liability	$	(3,077)	$	(3,077)

The Company’s net operating loss carryforwards at December 31, 2023 are $167.6 million and $118.9 million for federal and state income tax purposes, respectively. Federal and state net operating loss carryforwards are available to offset future taxable income, if any, and will begin to expire in 2026 and 2028, respectively. The federal net operating loss carryforwards generated after 2017 of $113.1 million will carryforward indefinitely and can be used to offset up to 80% of future annual taxable income.

The Company’s net operating loss carryforwards may be subject to a substantial annual limitation as a result of ownership changes that have occurred or could occur in the future pursuant to Internal Revenue Code Sections 382 and 383. These ownership changes may limit or eliminate the amount of net operating loss carryforwards that can be utilized to offset future taxable income. If eliminated, the related asset would be removed from deferred tax assets with a corresponding reduction in the valuation allowance. In general, an 'ownership change' as defined by the tax code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain stockholders or public groups. The Company has not undergone an ownership change analysis pursuant to Internal Revenue Code Section 382 as of December 31, 2023.

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use existing deferred tax assets. Based on the weight of available evidence, including the Company's history of operating losses, management has determined that it is more likely than not that the Company’s net deferred tax assets will not be realized. Accordingly, a valuation allowance has been established by the Company to fully offset these net deferred tax assets. The Company increased its valuation allowance by approximately $6.3 million during the year ending December 31, 2023:

	December 31,
	2023		2022
U.S. federal statutory income tax rate	21.0	%	21.0	%
Adjustments for tax effects of:
State income taxes, net of federal tax	2.9	%	7.3	%
Stock-based compensation	(1.6)	%	(0.2)	%
Change in valuation allowance	(9.3)	%	(28.6)	%
Debt extinguishment	(1.2)	%	0.0	%
Change in rate	(3.3)	%	0.0	%
Fair value adjustment on convertible debt	(6.6)	%	0.0	%
Other	(1.9)	%	0.5	%
Effective income tax rate	(0.0)	%	0.0	%

The Company files income tax returns in the U.S. federal jurisdiction, state of California and certain foreign jurisdictions. As of December 31, 2023, the Company is no longer subject to U.S. federal income tax examinations for tax years ended on or before December 31, 2019 or to California state income tax examinations for tax years ended on or before December 31, 2018. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or credit carryforward.

The Company did not have a liability for unrecognized tax benefits at December 31, 2023 and 2022.

The Company’s policy is to classify interest and penalties on uncertain tax positions as a component of tax expense. As of December 31, 2023 and 2022, the Company has no accrued interest or penalties related to uncertain tax positions.

Deferred income taxes have not been provided for undistributed earnings of the Company’s consolidated foreign subsidiary because the parent entity would not be required to include the distribution into income as the amount would be tax free.

The Tax Cuts and Jobs Act subjects a U.S. stockholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5. Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election either to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI in the year the tax is incurred.