Annual report pursuant to Section 13 and 15(d)

Income Tax

v3.22.4
Income Tax
 12 Months Ended
Jan. 01, 2023
Income Tax Disclosure [Abstract]  
Income Tax Income Tax
Net loss before income taxes was attributable to the following geographic locations for the fiscal years 2022, 2021 and 2020 (in thousands).
Fiscal Years
2022 2021 2020
United States $ (51,496) $ (125,797) $ (39,637)
Foreign (126) (77) (13)
Net loss before income taxes $ (51,622) $ (125,874) $ (39,650)
During the fiscal years 2022, 2021 and 2020, there was no provision for income taxes recorded as the Company generated net operating losses and a full valuation allowance was recorded against all U.S. federal and state net deferred tax assets. The following table shows the differences between the effective tax rate and the U.S. federal statutory tax rate for the fiscal years 2022, 2021 and 2020.
Fiscal Years
2022 2021 2020
Federal statutory tax rate 21.0  % 21.0  % 21.0  %
State and local income taxes, net of federal benefit 16.2  % 3.7  % 4.3  %
Change in fair value of convertible promissory notes —  % —  % (1.3  %)
Non-deductible convertible preferred stock warrant expense 30.6  % (9.4  %) (8.1  %)
Federal tax credits (1.7  %) 0.3  % 0.5  %
Share-based compensation (3.5  %) (0.8  %) (0.3  %)
Extinguishment of PPP Loan —  % —  % 0.9  %
Impact of changes in valuation allowance (62.4  %) (14.6  %) (16.9  %)
Other (0.2  %) (0.2  %) (0.1  %)
Effective tax rate —  % —  % —  %
The following table shows the components of deferred tax assets (liabilities) as of January 1, 2023 and January 2, 2022.
January 1, 2023 January 2,
2022
Gross deferred tax assets:
Lease liabilities $ 2,479  $ 2,687 
Deferred revenue 1,056  2,201 
Share-based compensation 4,455  1,769 
Capitalized research and experimental expenses 11,891  — 
Federal and state credit carryovers 3,926  4,604 
Federal and state net operating losses 82,113  63,522 
Transaction costs 1,502  1,656 
Depreciation and amortization 1,347  250 
Total gross deferred tax assets 108,769  76,689 
Valuation allowance (107,053) (74,823)
Total deferred tax assets, net of valuation allowance 1,716  1,866 
Deferred tax liabilities:
Right-of-use asset (1,716) (1,866)
Total deferred tax liabilities (1,716) (1,866)
Net deferred tax assets $ —  $ — 
As of January 1, 2023, the Company had $334.4 million of state and $279.8 million of federal loss carryovers that could be utilized to reduce the tax liabilities of future years. The tax-effected loss carryovers were $29.5 million for state before federal effect, and $58.8 million for federal as of January 1, 2023. The Company also had $4.8 million of state research and development (“R&D”) tax credit carryovers and $4.1 million of federal R&D tax credit carryovers as of January 1, 2023.
The state losses expire between 2028 and 2042. Approximately $127.9 million of the federal losses expire between 2026 and 2037 and the remainder do not expire. The federal credit carryovers expire between 2027 and 2042. The state credit carryovers do not expire. Utilization of net operating losses and tax credit carryforwards are subject to certain limitations under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, due to historical changes in the Company’s ownership, as defined in current income tax regulations. A portion of the carryforwards may expire before being applied to reduce future income tax liabilities.
Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized. Significant judgement is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event the Company changes its determination as to the amount of deferred tax assets that can be realized, it will adjust the valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.
As of January 1, 2023, the Company recognized a full valuation allowance against its U.S. federal and state net deferred tax assets, including operating loss carryovers and credit carryovers. The Company evaluated the realizability of its net deferred tax assets based on all available evidence, both positive and negative, which existed as of January 1, 2023. The Company’s conclusion to maintain a full valuation allowance against its net deferred tax assets was based upon the assessment of its ability to generate sufficient future taxable income in future periods.
The following table summarizes the activities related to unrecognized tax benefits for the fiscal years 2022, 2021 and 2020.
Fiscal Years
2022 2021 2020
Balance at beginning of fiscal year $ 5,048  $ 4,368  $ 3,974 
Increases related to current year tax positions 549  537  394 
Increases related to the prior year tax positions 12  143  — 
Decreases related to prior year tax positions (1,181) —  — 
Balance at end of fiscal year $ 4,428  $ 5,048  $ 4,368 
As of January 1, 2023 and January 2, 2022, none of the amounts of unrecognized tax benefits would favorably affect the effective income tax rate in future periods if recognized, since the tax benefits would increase a deferred tax asset that is currently offset by a full valuation allowance.
As of January 1, 2023, the Company has not identified any unrecognized that benefits where it is reasonably possible that it will recognize a decrease within the next 12 months. If the Company does recognize such a decrease, the net impact on the Consolidated Statement of Operations and Comprehensive Loss would not be material.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense on the Consolidated Statement of Operations and Comprehensive Loss. For the fiscal years 2022, 2021 and 2020, no interest expense was recognized relating to income tax liabilities. There were no accrued interest or penalties related to income tax liabilities as of January 1, 2023 and January 2, 2022.
The Company files income tax returns in the U.S. federal jurisdiction and in the California and Florida state jurisdiction. In the normal course of business, the Company is subject to examination by taxing authorities in the U.S. The Company is not currently under examination by any taxing authority.