Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

8. INCOME TAXES

For the years ended December 31, 2021 and 2020, the Company did not record a current or deferred income tax expense or benefit due to current and historical losses incurred by the Company.

The effective income tax rate differed from the statutory federal income tax rate due to the following:

	YEAR ENDED DECEMBER 31,
	2021			2020
Federal income taxes at 21%		21.00	%		21.00	%
State income taxes, net of federal benefit and tax credits	6.90				6.04
Permanent differences	(0.19)				(1.60	)
Research and development credit	2.12				2.03
Change in valuation allowance	(29.30)				(26.96	)
Other adjustments	(0.53)				(0.51	)
		0.00	%		0.00	%

Significant components of the Company’s net deferred tax assets and liabilities as of December 31, 2021 and 2020 are as follows (in thousands):

	YEAR ENDED DECEMBER 31,
	2021			2020
Deferred Tax Assets:
Net operating losses	$	48,419		$	30,192
Tax credits		4,376			2,921
Deferred revenue		—			3,057
Accrued expenses		859			225
Right of Use Liabilities		1,633			0
Other		548			289
Total deferred tax assets		55,835			36,684
Valuation allowance		(49,079	)		(31,963	)
Total net deferred tax assets		6,756			4,721
Deferred Tax Liabilities:
Intangibles assets		7,952			7,891
Fixed assets		563			253
Right of Use Assets		1,372			0
Other		330			38
Total deferred tax liabilities		10,217			8,182
Total net deferred tax liabilities		(3,461	)	$	(3,461	)

The Company regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. In assessing the realizability of deferred tax assets, the Company considers taxable income in prior carryback years, as permitted under the tax law, forecasted taxable earnings, tax planning strategies, and the expected timing of the reversal of temporary differences. This determination requires significant judgment, including assumptions about future taxable income that are based on historical and projected information and is performed on a jurisdiction-by-jurisdiction basis.

The Company continues to maintain a partial valuation allowance against its deferred tax assets. During the years ended December 31, 2021 and 2020, management assessed the positive and negative evidence in its U.S. operations, and concluded that it is more likely than not that a portion of its deferred tax assets as of December 31, 2021 and 2020 will not be realized given the Company’s history of operating losses. In determining the amount of the valuation allowance to record, the Company considered the reversal of existing taxable temporary differences as a source of taxable income against which a portion of its deferred tax assets is benefitted. The Company recorded a full valuation allowance against the remaining U.S. deferred tax assets in excess of this source of taxable income. The valuation allowance against deferred tax assets increased by approximately $17.1 million during 2021 related to a full valuation allowance recorded against additional net operating losses and tax credits generated in the year.

As of December 31, 2021, the Company had federal net operating losses of $181.9 million, which may be available to offset future federal income tax liabilities.

As of December 31, 2020, the Company had federal net operating losses of $114.4 million, which may be available to offset future federal income tax liabilities. The Company’s federal net operating losses incurred prior to 2018, $37.2 million, expire through 2037, while its federal net operating losses incurred in 2018 and onwards, $144.7 million, can be carried forward indefinitely.

As of December 31, 2021, the Company had post-apportioned state net operating losses of $10.2 million that can generally be carried forward 20 years. As of December 31, 2020, the Company had post-apportioned state net operating losses of $6.1 million that can generally be carried forward 20 years.

As of December 31, 2021, the Company had $3.8 million and $0.4 million of federal and state research and development credits, respectively, which will expire at various dates through 2041. As of December 31, 2020, the Company had $2.6 million and $0.3 million of federal and state research and development credits, respectively, which will expire at various dates through 2040.

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 Company has not, yet, conducted a study to determine if any such changes have occurred that could limit its ability to use the net operating loss and tax credit carryforward.

The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions. A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. As of December 31, 2021 and 2020, the total amount of uncertain tax liabilities relates to federal and state tax credit carryforwards and are all recorded net in deferred taxes.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in thousands):

	YEAR ENDED DECEMBER 31,
	2021			2020
Balance, beginning of year	$	1,318		$	1,004
Additions for tax positions of current year		507			—
Additions for tax positions of prior years		(3	)		314
Balance, end of year	$	1,822		$	1,318

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. As of December 31, 2021 and 2020, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. There are currently no pending income tax examinations. 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 and state tax authorities to the extent utilized in a future period.