Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

12. 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 year ended December 31, 2021, the Company recorded a net loss of $48.7

million and, since it maintains a full valuation allowance on its deferred tax assets, the Company did not record an income tax benefit for the year ended December 31, 2021.

Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets are comprised of the following (in thousands):

	December 31,
	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	45,592		$	32,827
Research and development credits		2,489			656
Licenses		13			16
Stock based compensation		1,579			1,205
Operating lease liabilities		143			170
Other		51			512
Total gross deferred tax assets		49,867			35,386
Less: Valuation allowance		(49,744	)		(35,216	)
Net deferred tax assets		123			170
Deferred tax liabilities:
Operating lease assets		(123	)		(170	)
Total gross deferred tax liabilities		(123	)		(170	)
Net deferred taxes	$	—		$	—

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, respectively, 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 cumulative loss position and, as a result, a valuation allowance of $49.7 million and $35.2 million has been established at December 31, 2021 and 2020, respectively. The valuation allowance increased by $14.5 million for the year ended December 31, 2021 and decreased by $16.6 million for the year ended December 31, 2020. The increase in valuation allowance for the year ended December 31, 2021 was primarily due to the generation of net operating losses while the decrease in valuation allowance for the year ended December 31, 2020 was primarily related to the decrease in net operating loss and tax credit deferred tax assets as a result of a Section 382 limitation.

The following table presents the Company’s change in valuation allowance for the year ended December 31, 2020 and 2019:

	December 31,
	2021		2020
Valuation allowance at the beginning of the year	$	35,216	$	51,800
Change for current period		14,528		(16,584	)
Valuation allowance at the end of the year	$	49,744	$	35,216

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

	2021			2020			2019
Income tax computed at federal statutory tax rate		21.0	%		21.0	%		21.0	%
State taxes, net of federal benefit		5.9	%		5.7	%		6.1	%
Research and development and other tax credits		3.8	%		3.7	%		4.9	%
Stock based compensation		(0.6	)%		(1.0	)%		(0.6	)%
Federal net operating loss - Section 382 Limitation		—	%		(28.1	%)		—	%
Federal tax credit - Section 382 Limitation		—	%		(19.3	%)		—	%
State tax net operating loss - Section 382 Limitation		—	%		(25.5	%)		—	%
State tax credit - Section 382 Limitation		—	%		(7.0	%)		—	%
Other		(0.2	%)		—	%		—	%
Change in deferred tax asset valuation allowance		(29.9	)%		50.5	%		(31.4	)%
		0.0	%		—	%		—	%

As of December 31, 2021 and 2020, the Company had U.S. federal net operating loss carryforwards of approximately $188.2 million and $140.9 million, respectively, which may be available to offset future income tax liabilities. Of the $188.2 million net operating loss carryforwards as of December 31, 2021, $154.3 million has an indefinite life and $33.9 million will expire at various dates through 2037. As of December 31, 2021 and 2020, the Company also had U.S. state net operating loss carryforwards of approximately $96.3 million and $51.1 million, respectively, 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 $2.1 million and $0.5 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 $0.5 million and $0.1 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. As of June 3, 2020, the Company did have an ownership change as defined by Sections 382 and 383 of the Internal Revenue Code and therefore the Company has adjusted its federal and state tax attributes accordingly to disclose only the amounts 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 completed its Section 382 study through December 31, 2021 and confirmed no additional ownership changes that would trigger a Section 382 limitation has taken place. Subsequent ownership changes may further affect the limitations in future years.

The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2021 and 2020, the Company had no accrued interest or penalties related to uncertain tax positions and no such amounts have been recognized in the Company’s statements of operations and comprehensive loss.

The Company files income tax returns in the United States and various state jurisdictions. The federal, state and foreign income tax returns are generally subject to tax examinations for the tax years ended December 31, 2018 through December 31, 2021. To the extent the Company has tax attribute carryforwards, the tax years in which the

attribute was generated may still be adjusted upon examination by the Internal Revenue Service, state tax authorities to the extent utilized in a future period.