Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

14. Income Taxes

The Company has not recorded a current or deferred tax provision for the years ended December 31, 2021 and 2020. The effective income tax rate differed from the amount computed by applying the federal statutory rate to the Company’s loss before income taxes as follows:

	Year Ended December 31,
	2021		2020
Tax effected at statutory rate	21.0	%	21.0	%
State taxes	6.7		6.9
Equity-based compensation	(0.5)		(0.4)
Non-deductible expenses	(0.3)		—
Federal research and development credits	1.7		1.7
Change in valuation allowance	(28.6)		(29.2)
Effective income tax rate	0.0	%	0.0	%

Deferred tax assets consist of the following at December 31, 2021 and 2020 (in thousands):

	Year Ended December 31,
	2021		2020
Deferred tax assets:
Federal net operating loss carryforwards	$	31,387	$	16,376
State net operating loss carryforwards		8,910		4,400
Research and development credit carryforwards		3,873		2,101
Lease liability		2,980		3,134
Accruals and reserves		340		765
Intangible assets		2,061		1,912
Equity-based compensation		733		105
Total deferred tax assets:		50,284		28,793
Valuation allowance		(46,745)		(25,064)
Subtotal		3,539		3,729
Deferred tax liabilities:
Property and equipment		(1,883)		(1,944)
Right of use asset		(1,633)		(1,724)
Debt discount		(23)		(61)
Total deferred tax liabilities		(3,539)		(3,729)
Net deferred tax assets	$	—	$	—

The Company has had no income tax expense due to operating losses incurred since inception. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on this, the Company has provided a valuation allowance for the full amount of the net deferred tax assets as the realization of the deferred tax assets is not determined to be more likely than not. During the year ended December 31, 2021, the valuation allowance increased by $21.7 million primarily due to the increase in the Company’s book loss reported in the period and the generation of additional research and development credits.

As of December 31, 2021, the Company had $149.5 million and $141.0 million of federal and state operating loss carryforwards, respectively. Of the federal net operating loss carryovers, $144.6 million are not subject to expiration and the remaining federal and state net operating loss carryovers begin to expire in 2035. These loss carryforwards are available to reduce future federal taxable income, if any. As of December 31, 2021, the Company had $2.8 million and $1.4 million of federal and state credit carryovers which begin to expire in 2033. These loss and credit carryforwards are subject to review and possible adjustment by the appropriate taxing authorities.

Utilization of the Company’s net operating loss (“NOL”) carryforwards and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”) as well as similar state provisions. These ownership changes may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. 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. Since its formation, the Company has raised capital through the issuance of capital stock on several occasions. These financings could result in a change of control as defined by Section 382. The Company has not yet completed a detailed study of its inception to date ownership change activity.

The Company follows the provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes, which specifies how tax benefits for uncertain tax positions are to be recognized, measured, and recorded in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. As of December 31, 2021, and 2020, the Company has not recorded tax reserves associated with any unrecognized tax benefits. The Company’s

policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any, in its statements of income. As of December 31, 2021, and 2020, the Company had no reserves for uncertain tax positions. For the years ended December 31, 2021 and 2020, no estimated interest or penalties were recognized on uncertain tax positions. The Company has not recorded any interest or penalties on any unrecognized tax benefits since its inception.

The Company has not conducted a study of its research and development credit carryforwards. This study may result in an adjustment to research and development credit carryforwards; however, until a study is completed, and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated balance sheets or statements of operations and comprehensive loss if an adjustment were required.

The Company’s tax returns remain open to examination by the Internal Revenue Service and the Commonwealth of Massachusetts for the years ended December 31, 2018 to December 31, 2020. In addition, the Company’s tax carryover attributes such as net operating losses or credits from earlier periods are also subject to examination. The Company is currently not subject to any examinations by the Internal Revenue Service or any other tax authorities for any tax years.