Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

Note 15. Income Taxes

The components of the Company’s profit (loss) before income taxes are as follows:

 

 

 

Year Ended

 

 

 

December 31,

 

(in thousands)

 

2022

 

 

2021

 

Profit (loss) before income taxes:

 

 

 

 

 

 

Domestic

 

 

(24,673

)

 

$

3,685

 

Foreign

 

 

(1,133

)

 

 

226

 

Total

 

$

(25,806

)

 

$

3,911

 

 

The components of the income tax expense (benefit) are as follows:

 

 

 

Year Ended December 31,

 

(in thousands)

 

2022

 

 

2021

 

Current Provision

 

 

 

 

 

 

Federal

 

$

 

 

$

 

State

 

3

 

 

 

1

 

Foreign

 

69

 

 

 

55

 

Total current provision

 

72

 

 

 

56

 

Deferred Provision

 

 

 

 

 

 

Federal

 

 

(136

)

 

 

 

State

 

 

(52

)

 

 

 

Foreign

 

 

(302

)

 

 

 

Total deferred expense (benefit)

 

 

(490

)

 

 

 

Total income tax expense (benefit)

 

$

(418

)

 

$

56

 

 

The income tax expense (benefit) primarily relates to the release of certain domestic valuation allowance due to acquired deferred tax liabilities that was a source of income to support recognition of certain existing deferred tax assets as well as the benefit related to certain foreign losses.

The overall effective tax rate differs from the statutory US federal tax rate as follows:

 

 

 

Year Ended December 31,

 

 

 

% of Pretax Profit (Loss)

 

 

 

2022

 

 

2021

 

Statutory US federal tax rate

 

 

21.00

%

 

 

21.00

%

State income taxes, net of federal benefit

 

 

5.88

 

 

 

(51.05

)

Stock-based compensation

 

 

(8.24

)

 

 

26.08

 

Nondeductible expenses

 

 

 

 

 

1.44

 

Global intangible low-taxed income

 

 

 

 

 

1.17

 

Fair market value change in warrants and earn out liabilities

 

 

47.85

 

 

 

(337.50

)

Transaction costs

 

 

(1.26

)

 

 

(25.85

)

Officer's compensation

 

 

(0.69

)

 

 

26.36

 

Research and development credits

 

 

32.93

 

 

 

(11.95

)

Valuation allowance

 

 

(91.07

)

 

 

356.34

 

Change in statutory tax rate

 

 

(1.05

)

 

 

(3.26

)

Other

 

 

(3.80

)

 

 

(1.39

)

Effective tax rate

 

 

1.55

%

 

 

1.39

%

 

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

 

 

 

December 31,

 

(in thousands)

 

2022

 

 

2021

 

Deferred tax assets

 

 

 

 

 

 

Lease liability

 

$

11,220

 

 

$

 

Capitalized research and development costs

 

 

9,453

 

 

 

 

Stock compensation

 

 

2,296

 

 

 

2,138

 

Reserves

 

 

824

 

 

 

647

 

Deferred revenue

 

 

778

 

 

 

577

 

Accrued expenses

 

 

509

 

 

 

369

 

Amortization

 

 

200

 

 

 

174

 

Deferred expenses

 

 

 

 

 

446

 

Net operating losses

 

 

33,690

 

 

 

27,846

 

Research and development credits

 

 

12,260

 

 

 

3,717

 

Other credits

 

 

254

 

 

 

74

 

Gross deferred tax assets

 

$

71,484

 

 

$

35,988

 

Less: Valuation allowance

 

 

(59,514

)

 

 

(36,009

)

Deferred tax liabilities

 



 

 

 

 

Right-of-use assets

 

 

(10,599

)

 

 

 

Acquired intangible assets

 

 

(3,690

)

 

 

 

Depreciation

 

 

(464

)

 

 

21

 

Net deferred tax assets

 

$

(2,783

)

 

$

 

As of December 31, 2022, the Company had federal net operating loss carryforwards of $15.0 million that are subject to expire at various dates between 2033 and 2037, and net operating losses of $125.4 million, that have no expiration date and can be carried forward indefinitely but are limited in their usage to 80% of annual taxable income. As of December 31, 2022, the Company had state tax net operating loss carryforwards of $56.3 million, that are subject to expire at various dates between 2033 and 2041. At December 31, 2022, the Company had federal and state research and development tax credit carryforwards of $8.4 million and $5.1 million, respectively, which begin to expire in 2030.

As of December 31, 2022, the Company had foreign net operating loss carryforwards of $0.8 million, which have an unlimited carryforward period and do not expire.

The federal and state net operating loss and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, and similar state provisions, due to ownership change

limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. As of December 31, 2022, the Company has not completed a 382 study to assess whether a change of ownership has occurred since its formation.

The Company conducted a study of its research and development credits which resulted in an adjustment and increase to its research and development credit carryforwards.

Uncertain tax positions represent tax positions for which income tax reserves have been established. The Company’s policy is to record interest and penalties related to uncertain tax positions as part of income tax expense. Reserves for uncertain tax positions as of December 31, 2022 are not material and would not impact the effective tax rate if recognized due to the valuation allowance maintained against the Company’s net deferred tax assets.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business the Company is subject to examination by federal, state and foreign jurisdictions, where applicable. There are currently no pending income tax examinations. The Company is open to federal tax examination under statute from 2019 to present. The Company is open to tax examination in other jurisdictions from 2016 to present. Carryforward attributes from prior years may still be adjusted upon examination by federal, state and/or foreign tax authorities to the extent utilized in an open tax year or in future periods.

As of December 31, 2022, the Company has not provided for deferred income taxes on unremitted earnings of its foreign subsidiaries since these earnings are indefinitely reinvested. Upon distribution of such earnings in the form of dividends or otherwise, the Company could be subject to taxes. The Company’s foreign unremitted earnings is not material and, as such, any taxes attributable to such unremitted earnings would not be material.

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are primarily comprised of net operating losses and research and development credits. Management has determined that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets and, as a result, a valuation allowance of $59.5 million has been established at December 31, 2022.

The following table presents the changes in the balance of the Company’s deferred income tax asset valuation allowance:

 

 

 

Year Ended December 31,

 

(in thousands)

 

2022

 

 

2021

 

Balance at beginning of year

 

$

36,009

 

 

$

21,466

 

Additions charged to expense

 

 

23,505

 

 

 

14,543

 

Balance at end of year

 

$

59,514

 

 

$

36,009