Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

The following table presents a reconciliation of the statutory federal rate and the Company’s effective tax rate:

	Years Ended December 31,
	2021			2020
Federal statutory income tax rate		21.00	%		21.00	%
State taxes, net of federal benefit		4.72	%		4.19	%
Permanent differences		(0.31	)%		(0.33	)%
Other credits		1.58	%		0.23	%
Foreign rate differential		(0.05	)%		0.45	%
Other		(0.51	)%		(0.01	)%
Change in valuation allowance		(26.43	)%		(25.53	)%
Provision for income taxes	—%			—%

The following table presents the significant components of the Company’s deferred tax assets and liabilities for the periods presented:

	Years Ended December 31,
	2021			2020
Deferred tax assets (liabilities):
Accruals	$	384		$	—
Stock Compensation		820			27
Fixed assets		(12	)		(20	)
Intangible assets		365			242
Unrealized gain		18			81
Net operating loss carryfowrards		19,857			12,294
Research and development credit		2,385			856
Research and development credit Fin 48		(319	)		(139	)
Valuation allowance		(23,498	)		(13,341	)
Net deferred tax assets (liabilities)	$	—		$	—

At December 31, 2021 and December 31, 2020, the Company evaluated all significant available positive and negative evidence, including the existence of losses in recent years and management’s forecast of future taxable income, and, as a

result, determined it was more likely than not that federal and state deferred tax assets, including benefits related to net operating loss carryforwards, would not be realized. The valuation allowance was increased from $13.3 million at December 31, 2020 to $23.5 million at December 31, 2021.

As of December 31, 2021, the Company has $77.1 million each of federal and state net operating loss carryforwards. Federal net operating loss carryforward incurred prior to 2018 as well as the state net operating loss carryforward begin to expire in 2037. Federal net operating losses incurred in 2018 and after have an unlimited carryforward period. The Company also has $0.06 million of Australian net operating loss carryforwards which also have an unlimited carryforward period. Because the Company has incurred cumulative net operating losses since inception, all tax years remain open to examination by U.S. federal, state, and foreign income tax authorities.

The Company had an unrecorded tax benefit of $0.3 million and $0.1 million due to uncertain tax positions as of December 31, 2021 and 2020, respectively. The Company's policy for recording interest and penalties is to record them as a component of interest expense and operating expenses, respectively. As of December 31, 2021, the Company had no accrued interest or penalties related to uncertain tax positions. The total unrecorded benefit would affect the effective tax rate but for the Company's valuation allowance. The Company does not expect a material change in unrecognized tax benefits within the next 12 months.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

	Years Ended December 31,
	2021		2020
Balance at the beginning of the year	$	139	$	1,144
Additions for tax positions taken in the current year		110		70
Addition (reduction) for prior tax positions		70		(1,075	)
Balance at the end of the year	$	319	$	139

Potential 382 limitation

The Company’s ability to utilize its net operating loss (NOL) and research and development (R&D) credit carryforwards may be substantially limited due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain stockholders or public groups.

The Company has not completed a study to assess whether one or more ownership changes have occurred since the Company became a loss corporation under the definition of Section 382. If the Company has experienced an ownership change, utilization of the NOL or R&D credit carryforwards would be subject to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any such limitation may result in the expiration of a portion of the NOL or R&D credit carryforwards before utilization. Until a study is completed and any limitation known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit under ASC-740. Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance, it is not expected that any possible limitation will have an impact on the results of operations of the Company.