Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 13. Income Taxes

Prior to the Spin-off, the Company was included in the consolidated federal tax return of PDL. Subsequent to the Spin-Off, the Company is no longer included in the consolidated federal tax return of PDL and files separate tax returns starting for the year ended December 31, 2020. The provision for income taxes for the years ended December 31, 2021 and 2020 reflects the impact of the Spin-Off and the Company’s status as a separate company for federal and state income tax filing purposes.

For financial reporting purposes, loss before income taxes includes the following components:

	Years Ended December 31,
	2021			2020
United States	$	(19,601	)	$	(19,774	)
Foreign		—			—
Total	$	(19,601	)	$	(19,774	)

The provision for income taxes for the years ended December 31, 2021 and 2020 consisted of the following:

	Year Ended December 31,
	2021		2020
Current income tax expense (benefit)
Federal	$	—	$	—
State		—		—
Foreign		—		—
Total current		—		—
Deferred income tax (benefit)
Federal		—		—
State		—		—
Foreign		—		—
Total deferred		—		—
Total provision	$	—	$	—

A reconciliation of the income tax provision computed using the U.S. statutory federal income tax rate compared to the income tax provision included in the statements of operations is as follows:

	Year Ended December 31,
	2021			2020
Tax at U.S. statutory rate on income before income    taxes	$	(4,116	)	$	(4,153	)
Change in valuation allowance		3,930			1,573
State taxes		(684	)		(210	)
Section 162(m)		310			—
Stock-based compensation		559			68
(Income)/Loss taxable in period under the separate    return method		—			2,719
Other		1			3
Total	$	—		$	—

Deferred tax assets and liabilities are determined based on the differences between financial reporting and income tax bases of assets and liabilities, as well as net operating loss carryforwards, and are measured using the enacted tax rates

and laws in effect when the differences are expected to reverse. The significant components of the Company’s net deferred tax assets and liabilities are as follows:

	Year Ended December 31,
	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	4,417		$	496
Intangible assets		6,287			6,541
Stock-based compensation		1,675			1,886
Other		639			170
Total deferred tax assets		13,018			9,093
Valuation allowance		(13,014	)		(9,084	)
Total deferred tax assets, net of valuation allowance		4			9
Deferred tax liabilities:
Other		(4	)		(9	)
Total deferred tax liabilities		(4	)		(9	)
Net deferred tax assets	$	—		$	—

The deferred tax assets associated with net operating losses included in the table above for the years ended December 31, 2021 and 2020 reflect the net operating losses the Company expects to generate on its separate federal and state income tax returns subsequent to the Spin-Off.

As of December 31, 2021 and 2020, the Company maintained federal net operating loss carryforwards of $15,993 and $1,972, respectively. As of December 31, 2021 and 2020, the Company also maintained state net operating loss carryforwards of $13,502 and $1,532, respectively. The federal net operating losses generated during the period ended December 31, 2020 after the Spin-Off and during the year ended December 31, 2021 may only be utilized to offset 80% of taxable income annually and may be carried forward indefinitely. The state net operating losses generated after the Spin-Off will begin to expire in the year 2028 if not utilized.

As of December 31, 2021, the Company determined that it was more likely than not that certain deferred tax assets would not be realized in the near future and maintained a $13,014 valuation allowance against deferred tax assets. The net change in total valuation allowance between the years ended December 31, 2021 and 2020, was an increase of $3,930. The Company’s designation was based on its review and analysis of all the available evidence as of the balance sheet date, both positive and negative.

A reconciliation of the Company’s unrecognized tax benefits, excluding accrued interest and penalties, is as follows:

	Year Ended December 31,
	2021		2020
Balance at the beginning of the year	$	—	$	2,255
Decreases related to prior year tax positions		—		—
Increases related to tax positions from prior fiscal years		—		—
Increases related to tax positions taken during current    fiscal year		—		—
Decreases related to the Spin-Off		—		(2,255	)
Balance at the end of the year	$	—	$	—

The Company periodically evaluates its exposures associated with its tax filing positions. At this time, the Company does not anticipate a material change in the unrecognized tax benefits that would affect the effective tax rate or deferred tax assets or valuation allowances over the next 12 months.

The U.S. federal income tax returns for which the Company filed as part of the PDL consolidated group are subject to examination for tax years 2017 forward. Certain of the Company’s state and local returns are subject to examination by authorities for tax years 2010 forward. The Company’s income tax returns for periods separate from our consolidation with PDL are subject to examination by U.S. federal, state and local tax authorities for tax years 2020

forward. The Company is not currently under examination in any significant tax jurisdictions. Interest and penalties associated with unrecognized tax benefits accrued on the balance sheet were $0 as of December 31, 2021 and 2020.

In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020, and the American Rescue Plan Act, which was enacted on March 11, 2021, in the U.S., include measures to assist companies, including temporary changes to income and non-income-based tax laws. The Company will monitor additional guidance and impact that the CARES Act, American Rescue Plan Act, and other potential legislation may have on its income taxes.

The provision for income taxes is determined using the asset and liability approach. Tax laws require items to be included in tax filings at different times than the items are reflected in the Consolidated Financial Statements. A current liability is recognized for the estimated taxes payable for the current year. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes are adjusted for enacted changes in tax rates and tax laws. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.