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 Income Taxes
For the years ended December 31, 2022 and 2021, the Company incurred net losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. On December 31, 2022, the Company had approximately $212.6 million of U.S. federal and state net operating losses. On December 31, 2021, the Company had approximately $41.8 million of federal and state net operating losses. The federal net operating loss carryforwards can be carried forward by the Company indefinitely while the state net operating losses begin to expire in 2029.
 
The components of the Company's deferred tax assets and liabilities are as follows:

Year Ended December 31,
(in thousands)
2022 2021
Currently reportable expense
Federal
 $ — $ —
State
 — —
— —
Deferred benefit:
Federal
 14,434 6,129
State
 5,948 2,163
20,382 8,292
Less valuation allowance (20,382) (8,292)
Total provision for income tax expense $ — $ —

The following table presents the reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rate:
Year Ended December 31,
2022 2021
Federal statutory income tax rate 21.0% 14,434.0 21.0%
State tax 4.2% 14,434.0 3.3%
Stock-based compensation (5.3)% 14,434.0 (6.2)%
Non-deductible expenses (1.6)% 14,434.0 —%
Research and development credit 0.1% 14,434.0 —%
Change in valuation allowance (18.4)% 14,434.0 (16.3)%
Warrant revaluation —% 14,434.0 (1.8)%
Effective tax rate —  % —  %

The difference between the provision for income taxes at the federal statutory rate of 21% and the income tax provision recorded was predominantly comprised of the impact of stock-based compensation and the change in valuation allowance. The change year over year is primarily the result of increased stock-based compensation activity during the year ended December 31, 2022, adjustments to deferreds, and the expansion of the Company’s state profile as a result of the Pete’s Acquisition.
December 31,
(in thousands)
2022 2021
Gross deferred tax assets arising from
Net operating loss carryforwards $ 27,953 $ 11,619
ASC 842 lease liability 3,317 3,661
Acquired intangibles 1,082 —
Accruals and reserves 1,418 —
Capitalized research expenditures 2,210 —
Capitalized SPAC transaction costs — 1,207
Gross deferred tax assets 35,980 16,487
Deferred tax liabilities arising from:
Deferred franchise tax — (598)
ASC 842 right-of-use asset (2,749) (3,071)
Depreciation (1,744) (1,714)
Gross deferred tax liabilities (4,493) (5,383)
Net deferred tax assets before valuation allowance 31,487 11,104
Less valuation allowance (31,487) (11,104)
Net deferred tax assets $ — $ —

For financial reporting purposes, the Company has incurred a loss in each period since its inception. Based on the available objective evidence, including the Company’s history of losses, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at December 31, 2022 and 2021. During the years ended December 31, 2022 and 2021, the change in the valuation allowance of $20.4 million and $8.3 million, respectively, was primarily due to the generation of additional net operating losses.

As of December 31, 2022, the Company had $0.1 million of federal research and development credits which will begin to expire in 2042.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the right to deduct research and development expenditures for tax purposes in the period the expenses were incurred and instead requires all U.S. and foreign research and development expenditures to be amortized over five and fifteen tax years, respectively. As a result, the Company recognized a deferred tax asset for the future tax benefit of the amortization deductions of the capitalized research and development expenditures that was fully offset by a change in valuation allowance.

The Company's income tax returns and the amount of income or loss reported are subject to examination by the respective taxing authorities. If such examinations result in changes to the profits or losses, the tax liabilities of the Company could be changed accordingly.