Income taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

Income tax recovery varies from the amounts that would be computed by applying the expected U.S. federal income tax rate (21%) as shown in the following table:

	December 31,
	2021		2020
Statutory federal income tax rate	(21.0)	%	(21.0)	%
Foreign rate differential	—		(0.1)
Stock-based compensation	2.0		1.8
Disposal of Aquinox Canada	—		(5.2)
Change in valuation allowance	21.2		26.5
Expiration of NOLs (section 382)	—		0.5
Tax credits	(2.2)		(2.5)
Income tax recovery	—	%	—	%

Net loss before taxes (in thousands):	Years Ended December 31,
	2021		2020
Canada	$	—	$	(522)
U.S.	(60,692)		(32,755)
Total	$	(60,692)	$	(33,277)

Deferred income tax assets and liabilities result from the temporary differences between the amount of assets and liabilities recognized for financial statement and income tax purposes. The significant components of the deferred income tax assets are as follows (in thousands):

	December 31,
	2021		2020
Deferred tax assets:
U.S. net operating losses	$	22,863	$	12,328
Research and development deductions and credits	2,414		1,040
Intangibles	457		422
Lease liability	2,701		2,513
Stock-based compensation	1,695		717
Other	186		162
Total deferred tax assets:	30,316		17,182
Deferred income tax liabilities
Right-of-use assets	2,261		2,132
Other	287		157
Total deferred tax liabilities	2,548		2,289
Net deferred income tax assets	27,768		14,893
Less: valuation allowance	(27,768)		(14,893)
Deferred tax assets, net of valuation allowance	$	—	$	—

On July 31, 2020, the Company sold all issued and outstanding capital stock of its Canadian subsidiary, Aquinox Canada, to an unrelated third party for cash consideration. As of the date of sale, Aquinox Canada’s remaining assets included intellectual property and other assets developed through past research and development activities, all of which had no book value. The transaction resulted in a net gain on sale of $7.8 million. The sale of Aquinox Canada triggered a significant capital loss carryforward for tax purposes. However, most of the capital loss carryforward is limited by the prior ownership change under Section 382. The remaining unlimited portion of the capital loss carryforward will be subject to a full valuation allowance as the Company has determined that it is more likely than not that the benefit of the loss will not be realized. After the sale, Aquinox Canada's tax attributes of $51.7 million including the net operating losses, scientific research and experimental development expenditures and investment tax credits are no longer reflected in the deferred tax assets and valuation allowance.

At December 31, 2021 and December 31, 2020, the Company had U.S. federal net operating losses ("NOL") carryforwards for tax purposes of approximately $108.2 million and $58.1 million, respectively, which were available to reduce taxable income. Of the $108.2 million of federal NOL carryforwards, $1.7 million will expire between the years 2028 and 2037 and the remaining $106.5 million are indefinite. The Company also has U.S. federal research & development tax credits of $2.4 million and $1.0 million as of December 31, 2021 and December 31, 2020, respectively, that begin to expire in 2039. The Company completed a formal study under IRC Section 382 through 2019 to determine the U.S. tax attributes available for use. The U.S. attributes disclosed reflect the conclusion of that study. However, subsequent ownership changes may further affect the limitation in future years.

The Company maintains a full valuation allowance on its net U.S. deferred tax assets. The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. In making this assessment, significant weight is given to evidence that can be objectively verified. In its evaluation, the Company considered its cumulative losses and its forecasted losses in the near-term as significant negative evidence. Therefore, the Company determined that the negative evidence outweighed the positive evidence and a full valuation allowance on its assets will be maintained. The Company will continue to assess the realizability of its assets going forward and will adjust the valuation allowance as needed. The valuation allowance increased by $12.9 million for the year ended December 31, 2021. The increase is primarily due to an increase in U.S. net operating losses and research and development tax credits. The valuation allowance decreased by $42.9 million for the year ended December 31, 2020. The decrease is primarily due to the sale of Aquinox Canada and the write-off of the related tax attributes, and partially offset by an increase in U.S. net operating losses and research and development tax credits.

The Company applies judgment in the determination of the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. As of December 31, 2021, the Company had no uncertain tax positions.

The Company currently files income tax returns in the United States, the jurisdictions in which the Company believes that it is subject to tax. Further, while the statute of limitations in each jurisdiction where an income tax return has been filed generally limits the examination period, as a result of loss carryforwards, the limitation period for examination generally does not expire until several years after the loss carryforwards are utilized. Other than routine audits by tax authorities for tax credits and tax refunds that the Company has claimed, the Company is not aware of any other material income tax examination currently in progress by any taxing jurisdiction.