Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes [Abstract]

Income Taxes

Note 16. Income Taxes

The components of loss before provision for income taxes for the years ended December 31, 2023, 2022 and 2021 are as follows (in thousands):

	2023			2022			2021
U.S. loss before provision for income taxes	$	(95,977	)	$	(132,442	)	$	(94,989	)
Foreign income before provision for income taxes		17			-			-
Loss before provision for income taxes	$	(95,960	)	$	(132,442	)	$	(94,989	)

For purposes of reconciling the Company’s provision for income taxes at the statutory rate and the Company’s provision (benefit) for income taxes at the effective rate, a notional 21% tax rate was applied as follows:

	2023			2022			2021
Federal income tax at statutory rate		21.0	%		21.0	%		21.0	%
State income tax, net of federal benefit		7.81			4.10			7.0
Uncertain tax positions		(1.45	)		-			-
Tax credits generated in current year		0.68			1.90			2.8
Return to provision adjustments		(3.25	)		-			-
Stock-based compensation		(3.17	)		(0.50	)		1.6
Other		(0.10	)		0.90			0.6
Valuation allowance change		(21.52	)		(27.40	)		(33.0	)
Total		0.0	%		0.0	%		0.0	%

The difference between the statutory federal income tax rate in 2023, 2022 and 2021 is primarily attributable to the effect of losses sustained which required a valuation allowance.

The provision for income taxes for the years ended December 31, 2023, 2022 and 2021 consists of the following (in thousands):

	2023		2022		2021
Current:
Federal	$	-	$	-	$	-
State		-		-		-
Foreign		-		-		-
Total current		-		-		-
Deferred:
Federal		-		-		-
State		-		-		-
Foreign		-		-		-
Total deferred		-		-		-
Income tax provision	$	-	$	-	$	-

The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities as of December 31, 2023 and 2022 related to the following (in thousands):

	2023			2022
Deferred income tax assets:
Net operating loss carryforwards	$	89,525		$	77,008
Tax credit carryforwards		9,855			13,358
Stock-based compensation		4,528			7,309
Operating lease liabilities		3,385			4,344
Loss on marketable securities		2,195			5,724
Capitalized research and development		30,878			12,005
Other		2,938			3,925
Total deferred income tax assets	$	143,304		$	123,673
Deferred income tax liabilities:
Operating lease right-of-use assets	$	(215	)	$	(4,258	)
Property and equipment		(3,558	)		(381	)
Total deferred income tax liabilities		(3,773	)		(4,639	)
Valuation allowance		(139,531	)		(119,034	)
Net deferred tax assets (liabilities)	$	-		$	-

A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2023. Such objective evidence limits the ability to consider other subjective evidence such as its projections for future growth. On the basis of this evaluation, at December 31, 2023 and 2022, a valuation allowance of $139.5 million and $119.0 million, respectively, has been recorded.

As of December 31, 2023, the Company has accumulated federal and state net operating loss (“NOL”) carryforwards of $336.8 million and $322.6 million, respectively. Of the $336.8 million of federal NOL carryforwards, $65.5 million was generated before January 1, 2018 and is subject to the 20-year carryover period (“pre-Tax Act losses”). The remaining $271.3 million can be carried forward indefinitely but is subject to the 80% taxable income limitation. Of the $322.6 million of state NOL carryforwards, $16.2 million can be carried forward indefinitely. The pre-Tax Act U.S. federal and state NOL carryforwards will expire in varying amounts through 2043.

In addition, the Company also has federal and Connecticut research and development credit carryforwards totaling $8.1 million and $3.8 million, respectively. The federal credits begin to expire in 2033 unless previously utilized, while the state credits do not expire.

Pursuant to Sections 382 and 383 of the Internal Revenue Code (“IRC”), annual use of the Company’s NOL and credit carryforwards may be limited in the event a cumulative change of ownership of more than 50% occurs within a three-year period. Since the Company’s formation, the Company has raised capital through the issuance of capital stock, which on its own or combined with the purchasing stockholders’ subsequent disposition of those shares, may have resulted in such an ownership change, or could result in an ownership change.

Upon the occurrence of an ownership change under Section 382 as outlined above, utilization of the Company’s NOL and research and development credit carryforwards are 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, which could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOL or research and development credit carryforwards before utilization. The Company has completed an analysis through December 31, 2023 and no such ownership change has occurred however an ownership change may occur in the future.

The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of related appeals or litigation processes if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcome of examinations by tax authorities in determining the adequacy of its provision for income taxes.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits as of December 31, 2023, 2022 and 2021 (in thousands):

	2023		2022		2021
Beginning balance	$	-	$	-	$	-
Increases related to prior year tax positions		1,310		-		-
Increases related to current year tax positions		69		-		-
Ending balance	$	1,379	$	-	$	-

As of December 31, 2023, the Company had gross unrecognized tax benefits of $1.4 million, which would affect the effective tax rate if recognized subject to valuation allowance. The Company does not anticipate any significant changes in its unrecognized tax benefits over the next 12 months. The Company’s policy is to recognize the interest expense and/or penalties related to income tax matters as a component of income tax expense. The Company has no accrual of interest or penalties on its balance sheets as of December 31, 2023 and has not recognized interest and/or penalties in its Statements of Operations and Comprehensive Income for the year ended December 31, 2023.

The Company is subject to taxation in the United States, various states and France. The Company has not been notified that it is under audit by the Internal Revenue Service or any state or foreign taxing authorities, however, due to the presence of NOL carryforwards, all of the income tax years remain open for examination in each of these jurisdictions.

Additionally, as a result of legislation in the state of Connecticut, companies have the opportunity to exchange certain research and development tax credit carryforwards for a cash payment of 65% of the research and development tax credit. The research and development expenses that qualify for Connecticut credits are limited to those costs incurred within Connecticut. The Company has elected to participate in the exchange program and, as a result, has recognized net benefits of $0.2 million, $0.2 million and $0.9 million for the years ended December 31, 2023, 2022 and 2021, respectively, which are included in Research and development in the Consolidated Statements of Operations and Comprehensive Loss. As of each of the years ended December 31, 2023 and 2022, the Company has recorded $0.2 million of the research and development tax credit receivables in Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets. As of December 31, 2023, all refunds for years prior to 2023 have been received by the company, making the receivable amount $0.2 million as of December 31, 2023.