Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

14. Income Taxes

The Company did not record a current or deferred income tax expense or benefit for the years ended December 31, 2021 and 2020, due to the Company’s net and comprehensive losses and increases in its deferred tax asset valuation allowance. A reconciliation of the statutory federal income tax with the provision for income taxes are as follows:

	Year Ended December 31,
	2021				2020
Federal tax at statutory rate		21.0		%		21.0		%
State income tax, net of federal benefit		0.5				2.5
Nondeductible interest		(0.1	)			(4.9	)
Other permanent items		0.4				(1.6	)
Nondeductible impairment		(13.8	)			—
Research credit		0.9				28.8
Change in valuation allowance		(8.9	)			(45.7	)
Effective tax rate	$	—		%		0.1		%

Significant components of the Company’s deferred tax assets and liabilities are as follows (amounts in thousands): 

	December 31,
	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	34,228		$	7,265
Research and development tax credits		3,732			2,782
Other		1,214			227
Total deferred tax assets		39,174			10,274
Valuation allowance		(38,410	)		(10,255	)
Total gross deferred tax assets, net of valuation allowance		764			19
Deferred tax liabilities:
Other		(764	)		(19	)
Total gross deferred tax liabilities		(764	)		(19	)
Net deferred tax assets / (liabilities)	$	—		$	—

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized in future periods.

The Company has evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income and has determined it is more likely than not that the assets will not be realized. As a result, the Company has concluded that a full valuation allowance against its deferred tax asset is necessary at this time.   

As of December 31, 2021, the Company has federal and state net operating loss (“NOL”) carryforwards of $150.9 million and $55.8 million, respectively. Of the amount of federal NOL carryforwards, $106.6 million can be carried forward indefinitely. The remaining federal and state NOL carryforwards begin to expire in 2030, unless previously utilized. The Company also has federal and state research credit carryforwards of approximately $3.1 million and $1.7 million, respectively, unless previously utilized. The federal and New Jersey research credit carryforwards will begin to expire in 2037 and 2027, respectively, unless previously utilized. The California research and development (“R&D”) credit will carry forward indefinitely. The increase in the valuation allowance is $28.2 million and $1.6 million for the years ended December 31, 2021 and 2020, respectively.

Pursuant to Section 382 and 383 of the Internal Revenue Code (“IRC”), utilization of the Company’s NOL carryforwards and R&D credits may be subject to annual limitations in the event of any significant future changes in its ownership structure. These annual limitations may result in the expiration of NOL carryforwards and R&D credits prior to utilization.  As of December 31, 2021, the Company has completed an IRC Section 382 analysis through the date of the Merger. Ownership changes were identified that will result in annual limitations on future utilization of NOL and R&D credit carryforwards. To the extent such limitations will cause NOL and R&D credit carryforwards to expire unused, these tax attributes have been removed from deferred tax asset table above.

Uncertain tax positions are evaluated based upon the facts and circumstances that exist at each reporting period. Subsequent changes in judgement based upon new information may lead to changes in recognition, derecognition, and measurement. Adjustment may result, for example, upon resolution of an issue with the taxing authorities or expiration of a statute of limitations barring an assessment for an issue.

The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination by tax authorities.

The following table summarizes the changes to the Company’s gross unrecognized tax benefits for the years ended December 31, 2021 and 2020 (amounts in thousands):

	December 31,
	2021			2020
Balance at the beginning of the year	$	2,404		$	2,210
Decrease related to prior year positions		(24	)		—
Increase related to current year positions		294			194
Balance at the end of the year	$	2,674		$	2,404

Due to the existence of the valuation allowance, future recognition of previously unrecognized tax benefits will not impact the Company’s effective tax rate. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company is subject to taxation in the United States federal and certain state jurisdictions. The Company’s tax years from inception are subject to examination by the United States federal and state authorities due to the carryforward of unutilized NOLs and R&D credits.

The Company had no accrued interest and no penalties related to income tax matters in the Company’s balance sheet as of December 31, 2021 and has not recognized interest or penalties in the Company’s statement of operations and loss for the year ended December 31, 2021. Further, the Company is not currently under examination by any federal, state or local tax authority.

The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic. Some of the more significant provisions are removal of certain limitations on utilization of NOL’s, increasing the loss carryback period

for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act. As of December 31, 2021, the Company has not recorded any material adjustments to its income tax provision related to the provisions with the CARES Act. The Company will continue to analyze the impact that the CARES Act will have, if any, on its financial positions, results of operations or cash flows.