Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company recorded no income tax expense for the years ended December 31, 2023 and 2022. The Company continues to maintain a full valuation allowance.

A reconciliation of the statutory federal income tax with the provision for income taxes are as follows:

	Year Ended December 31,
	2023		2022
Federal tax at statutory rate	21.0	%	21.0	%
State income tax, net of federal benefit	3.4		1.8
Other permanent items	(0.9)		(0.1)
Change in tax rate	1.3		—
Officers Compensation	(0.7)		(1.7)
Research credit	5.4		2.4
Change in valuation allowance	(29.5)		(23.4)
Effective tax rate	—	%	—	%

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

	As of December 31,
	2023		2022
Deferred tax assets:
Net operating loss carryforwards	$	43,686	$	38,548
Research and development tax credits	8,734		5,168
Section 174 capitalized research expense	14,153		5,417
Other	6,131		4,219
Total deferred tax assets	72,704		53,352
Valuation allowance	(72,144)		(52,766)
Total gross deferred tax assets, net of valuation allowance	560		586
Deferred tax liabilities:
Other	(560)		(586)
Total gross deferred tax liabilities	(560)		(586)
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, 2023, the Company has federal and state net operating loss (“NOL”) carryforwards of $187.2 million and $92.0 million, respectively. Of the amount of federal and state NOL carryforwards, $143.1 million and $22.3 million, respectively, can be carried forward indefinitely. The remaining federal and state NOL carryforwards begin to expire in 2030 and 2037, unless previously utilized. The Company also has federal and state research credit carryforwards of approximately $9.1 million and $3.1 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 $19.4 million and $14.4 million for the years ended December 31, 2023 and 2022, 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.

The Company has completed an IRC section 382 analysis through December 31, 2022 and has identified ownership changes occurred on August 26, 2021 and February 28, 2017. These ownership changes will impose annual limits on the amounts of NOLs and R&D credits available at the ownership change dates, however assuming the Company does not experience future ownership changes and there is adequate taxable income to absorb the existing NOLs and R&D credits, none of these existing tax attributes are projected to expire before utilization. Future ownership changes occurring subsequent to December 31, 2022 may cause NOL and R&D credit carryforwards to expire unused and, if so, such tax attributes will be removed from the 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, 2023 and 2022 (in thousands):

	As of December 31,
	2023		2022
Balance at the beginning of year	$	3,380	$	2,674
Decrease related to prior year positions	235		2
Increase related to current year positions	982		704
Balance at the end of year	$	4,597	$	3,380

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 does not anticipate the unrecognized tax benefits to change materially within the next twelve months.

The Company had no accrued interest and no penalties related to income tax matters in the Company’s balance sheet as of December 31, 2023 and has not recognized interest or penalties in the Company’s statement of operations and loss for the year ended December 31, 2023. Further, the Company is not currently under examination by any federal, state or local tax authority.