Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company accounts for income taxes using the liability method in accordance with ASC Topic 740, Income Taxes (“ASC 740”). The difference between the financial statement and tax basis of the assets and liabilities is determined annually. Deferred income tax assets and liabilities are computed using the tax laws and rates that are expected to apply for periods in which such differences reverse. Valuation allowances are established, if necessary, to reduce the deferred tax asset to the amount that will more likely than not be realized.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

9. Income Taxes

The Company records a provision or benefit for income taxes on pre-tax income or loss based on its estimated effective tax rate for the year. During the years ended December 31, 2021 and 2020, the Company recorded net losses of approximately $43.5 million and $22.1 million, respectively, and, since it maintains a full valuation allowance on its deferred tax assets, the Company did not record an income tax benefit for the years ended December 31, 2021 and 2020.

A reconciliation of income tax expense computed at the statutory federal income tax rate to income taxes reflected in the consolidated financial statements is as follows:

	Year Ended December 31,
	2021			2020
Income tax computed at federal statutory tax rate		21.0	%		21.0	%
Permanent differences		(0.3	)%		(2.0	)%
State taxes, net of federal benefit		4.9	%		5.4	%
Research and development and other tax credits		4.7	%		2.6	%
Change in deferred tax asset valuation allowance		(30.4	)%		(28.4	)%
Other		0.1	%		1.4	%
		—	%		—	%

Net deferred tax assets as of December 31, 2021 and 2020 consist of the following (in thousands):

	December 31,
	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	46,462		$	35,729
Research and development credits		7,288			5,223
Stock-based compensation		848			322
Operating lease liabilities		382			661
Other		73			140
Total gross deferred tax assets		55,053			42,075
Less: Valuation allowance		(54,697	)		(41,451	)
Total deferred tax assets		356			624
Deferred tax liabilities:
Operating lease right-of-use assets		(356	)		(624	)
Total deferred tax liabilities		(356	)		(624	)
Net deferred taxes	$	—		$	—

As of December 31, 2021, the Company had U.S. federal net operating loss carryforwards of approximately $91.4 million which may be able to offset future income tax liabilities and expire at various dates through 2037 and approximately $85.3 million of federal net operating loss carryforwards that may be carried forward indefinitely. As of December 31, 2021, the Company also had state net operating loss carryforwards of approximately $148.4 million which may be available to offset future income tax liabilities and expire at various dates through 2041.

As of December 31, 2021 and 2020, the Company had federal research and development tax credit carryforwards of approximately $5.2 million and $3.6 million, respectively, available to reduce future tax liabilities which expire at various dates through 2041. As of December 31, 2021 and 2020, the Company had state research and development tax credit carryforwards of approximately $2.7 million and $2.0 million, respectively, available to reduce future tax liabilities which expire at various dates through 2036. The Company has generated research credits but has not conducted a study to document the qualified activity. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance.

Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position.

ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, the Company has recorded a valuation allowance against its deferred tax

assets at December 31, 2021 and 2020 because the Company’s 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 primarily due to its history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and, as a result, a valuation allowance of approximately $54.7 million and $41.5 million, respectively, has been established at December 31, 2021 and 2020. Management reevaluates the positive and negative evidence at each reporting period. The valuation allowance increased by approximately $13.2 million and $6.3 million, respectively, during the years ended December 31, 2021 and 2020 due primarily to the generation of net operating losses.

The Company has recorded adjustments to deferred tax assets for unrecognized tax benefits as of December 31, 2021 and 2020. The Company’s policy is to record interest and penalties related to uncertain tax positions as part of its income tax provision. As of December 31, 2021 and 2020, the Company had not accrued interest or penalties related to uncertain tax positions and no such amounts have been recognized in the Company’s statement of operations and comprehensive loss. In many cases, the Company’s uncertain tax positions are related to years that remain subject to examination by relevant tax authorities. The statute of limitations for federal and state tax authorities is closed for years prior to December 31, 2018. However, since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.