Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 8. Income Taxes

The following table summarizes the Company’s loss before income tax provision by region for the years ended December 31, 2021 and 2020 (in thousands):

	Years Ended December 31,
	2021			2020
United States	$	(62,118	)	$	(36,250	)
Foreign		(89	)		(1,054	)
Total loss before income provision	$	(62,207	)	$	(37,304	)

For the years ended December 31, 2021 and 2020, the Company did not record a provision for income taxes due to a valuation allowance against its deferred tax assets.

A reconciliation of the Company’s effective tax rate and federal statutory rate is summarized as follows (in thousands):

	Years Ended December 31,
	2021			2020
Federal income taxes	$	(13,063	)	$	(7,834	)
State income taxes		(4,344	)		(2,605	)
Permanent differences		(17	)		161
Research and development credits		(1,484	)		(1,129	)
Stock options		1,326			524
Other		63			2
Change in valuation allowance		17,519			10,881
	$	—		$	—

Significant components of the Company’s net deferred tax assets are summarized as follows (in thousands):

	December 31,
	2021			2020
Deferred tax assets:
Net operating losses	$	43,605		$	27,867
Research and development credits		5,397			3,913
Lease liability		282			489
Depreciation and amortization		284			242
Other accruals and prepaid expenses		1,962			1,688
Total gross deferred tax assets		51,530			34,199
Less: Valuation allowance		(51,278	)		(33,757	)
Deferred tax assets, net		252			442
Deferred tax liabilities:
Right-of-use asset		(252	)		(442	)
Total gross deferred tax liabilities		(252	)		(442	)
Net deferred tax assets	$	—		$	—

At December 31, 2021 and 2020, a valuation allowance of $51.3 million and $33.8 million, respectively, has been established to offset the deferred tax assets, as realization of such assets is uncertain.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in the U.S. in March 2020. The CARES Act adjusted a number of provisions of the tax code, including the eligibility of certain deductions and the treatment of net operating losses and tax credits. The CARES Act repeals the 80% limitation for taxable years beginning before January 1, 2021. The enactment of the CARES Act did not result in any material adjustments to the Company’s income tax provision for the year ended December 31, 2021 or to its deferred tax assets as of December 31, 2021.

California Assembly Bill 85 (“AB 85”) was signed into law by Governor Gavin Newsom on June 29, 2020. It was passed by both houses of the California state legislature on June 15, 2020. AB 85 disallowed California net operating losses for any taxable year beginning on or after January 1, 2020, and before January 1, 2023 for any

corporation with a net business or modified adjusted gross income of more than $1 million for the taxable year. This bill also limited any business credit to offset a maximum of $5 million of California tax, including the California Research Credit. On February 9, 2022, Governor Gavin Newsom signed Senate Bill 113 (“SB 113”). SB 113 restores the use of California net operating losses and eliminates the $5 million annual business credit limit for tax years beginning on or after January 1, 2022. The Company does not expect any material impacts related to these tax law changes.

As of December 31, 2021, the Company had federal net operating loss carryforwards of $164.5 million, of which $137.8 million were generated in tax years beginning after 2017 and can be carried forward indefinitely. Net operating losses generated after December 31, 2017 are also subject to an 80% limitation if utilized after 2020. The remaining federal net operating loss carryforwards of $26.7 million, which were generated prior to December 31, 2017, will begin to expire in 2034, if not previously utilized. As of December 31, 2021, the Company had state loss carryforwards of $127.4 million, which will begin to expire in 2034, if not previously utilized. As of December 31, 2021, the Company also had foreign loss carryforwards of $0.7 million, which do not expire.

As of December 31, 2021, the Company had federal and state research and development tax credit carryforwards of $4.5 million and $2.5 million, respectively. The federal research and development tax credit carryforwards expire beginning in 2035, unless previously utilized. The state research and development tax credit carryforwards may be carried forward indefinitely.

The Company has not completed a Section 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company’s formation due to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in the future. Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the Company’s net operating loss and research and development tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate.

The following table summarizes the changes to the Company’s unrecognized tax benefits (in thousands):

Balance at December 31, 2019	$	662
Increases related to prior year positions		212
Balance at December 31, 2020		874
Increases related to current year positions		279
Balance at December 31, 2021	$	1,153

As of December 31, 2021 and 2020, the Company had unrecognized tax benefits of $1.2 million and $0.9 million, respectively. The Company has not recognized interest or penalties related to unrecognized tax benefits. The Company does not expect that there will be a significant change in the unrecognized tax benefits over the next twelve months. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the effective tax rate.

The Company is subject to taxation in the United States, California, and Australia. The Company is subject to income tax examination by tax authorities in those jurisdictions for the years beginning in 2014 due to the carryforward of unutilized net operating losses and research and development credits. The Company is not currently under examination by any jurisdiction.