Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

14. Income Taxes

During the years ended December 31, 2021 and 2020, the Company did not record income tax benefits for the net operating losses incurred or for the research and development tax credits generated in each year, due to its uncertainty of realizing a benefit from those items. The Company does not have any foreign operations and therefore, has not provided for any foreign taxes.

A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:

	Year Ended December 31,
	2021		2020
Federal statutory income tax rate	(21.0)	%	(21.0)	%
State income taxes, net of federal benefit	(6.8)		(2.2)
Federal and state research and development tax credits	(4.5)		(2.8)
Nondeductible items	(11.7)		10.9
Other	—		(0.4)
Change in valuation allowance	44.0		15.5
Effective income tax rate	0.0	%	0.0	%

Net deferred tax assets consisted of the following (in thousands):

	December 31,
	2021		2020
Deferred tax assets:
Net operating loss carryforwards	$	20,054	$	14,688
Research and development tax credit carryforwards		7,054		6,064
Lease liability		1,483		1,871
Deferred Revenue		2,160		134
Accrued expenses and other		3,194		1,730
Total deferred tax assets		33,945		24,487
Deferred tax liabilities:
Right-of-use asset		(1,314)		(1,602)
Total deferred tax liabilities		(1,314)		(1,602)
Valuation allowance		(32,631)		(22,885)
Net deferred tax assets	$	—	$	—

As of December 31, 2021, the Company had U.S. federal and state net operating loss carryforwards of $80.4 million and $52.3 million, respectively, which may be available to offset future taxable income and begin to expire in 2032 and 2025, respectively, of which $46.0 million of federal net operating losses do not expire. As of December 31, 2021, the Company also had U.S. federal and state research and development tax credit carryforwards of $4.8 million and $2.7 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2032 and 2029, respectively.

Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income or tax liabilities. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit

carryforwards would be subject to an annual limitation under Section 382, 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 limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position.

The Company has not conducted a study to document qualified activities for research and development tax credits generated. Such a study may result in an adjustment to the Company’s research and development tax credit carryforwards; however, until a study is completed, and any adjustment is known, no amounts are being presented as an uncertain tax position.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net operating losses incurred since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2021 and 2020. Management reevaluates the positive and negative evidence at each reporting period.

Changes in the valuation allowance for deferred tax assets related primarily to the increase in net operating loss carryforwards and research and development tax credit carryforwards and were as follows (in thousands):

	Year Ended December 31,
	2021		2020
Valuation allowance as of beginning of year	$	22,885	$	20,903
Increases recorded to income tax provision		9,746		1,982
Valuation allowance as of end of year	$	32,631	$	22,885

As of December 31, 2021 and 2020, the Company had not recorded any amounts for unrecognized tax benefits. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. As of December 31, 2021 and 2020, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts had been recognized in the Company’s consolidated statements of operations and comprehensive loss. The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. The Company is open to future tax examination under statute from 2018 to the present; however, carryforward attributes that were generated prior to 2018 may still be adjusted upon examination by federal, state or local tax authorities if they either have been or will be used in a future period. The Company is currently under examination by the Internal Revenue Service for the year ending December 31, 2018. No material adjustments have been proposed to date. The Company has not received notice of examination by any other jurisdictions for any other tax year open under statute.