Income Taxes

12 Months Ended

Dec. 31, 2019

As of December 31, 2019, the Company had net federal operating loss carry forwards and state operating loss carry forwards of approximately $277 million and $39 million, respectively. The net federal operating loss carry forwards begin to expire in 2023, and net state operating loss carry forwards begin to expire in 2019.

Due to such uncertainties surrounding the realization of the deferred tax assets, the Company maintains a valuation allowance of $70.1 million and $64.1 million against all of its deferred tax assets as of December 31, 2019 and 2018, respectively. For the years ended December 31, 2019 and 2018, the total change in valuation allowance was $6.0 million and $1.7 million, respectively. Realization of the deferred tax assets will be primarily dependent upon the Company's ability to generate sufficient taxable income.

Net deferred tax assets and liabilities for the years ended December 31, 2019 and 2018 are as follows (in thousands):


	2019		2018

Net operating losses	$	66,405	$	62,800
Stock-based compensation	1,648		873
Interest expense	1,494		—
Accrued liabilities and reserves	744		218
Fixed assets	51		72
Lease liability	658		—
Other temporary differences	23		315
Prepaid expenses	(186)		(176)
Right-of-use asset	(710)		—
Valuation allowance	(70,127)		(64,102)
Net deferred tax asset	$	—	$	—

The Company has provided a valuation allowance in full on its net deferred tax assets in accordance with ASC 740 Income Taxes. Because of the Company's continued losses, management assessed the realizability of its net deferred tax assets as being less than the more-likely-than-not criteria set forth by ASC 740. Furthermore, certain portions of the Company's net operating loss carryforwards were acquired, and therefore subject to further limitation set forth under the federal tax code, which could further limit the Company's ability to realize its deferred tax assets.

A reconciliation between the statutory federal income tax rate and the effective income tax rate for the years ended December 31, 2019 and 2018 is as follows:


	2019		2018
Tax at federal statutory rate	21.0	%	21.0	%
Stock-based compensation	(1.2)	%	(29.3)	%
Deferred revenue	—	%	(2.8)	%
Change in Foreign NOLS due to liquidation	—	%	(8.3)	%
Other	(0.2)	%	3.3	%
Change in federal valuation allowance	(19.6)	%	16.1	%
Change in federal NOLs due to 382 study results	—	%	—	%
Tax provision	—	%	—	%

The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. There were no interest and penalties for the years ended December 31, 2019 and 2018, respectively. The Company files income tax returns with the Internal Revenue Service (“IRS”) and various states with sufficient nexus. For jurisdictions in which tax filings are prepared, the Company is no longer subject to income tax examinations by state tax authorities for tax years prior to 2014, and by the IRS for tax years through 2016. The Company’s net operating loss carryforwards are subject to IRS examination until they are fully utilized and such tax years are closed.

There are currently no income tax audits in any jurisdictions for open tax years and, as of December 31, 2019, there have been no material changes to our tax positions.

Under Section 382 of the Internal Revenue Code of 1986, as amended, or the IRC, substantial changes in our ownership may limit the amount of net operating loss and research and development income tax credit carryforwards that could be utilized annually in the future to offset taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of the company of more than 50% within a three-year testing period. Any such annual limitation may significantly reduce the utilization of the net operating loss carryforwards before they expire.

Since the Company's formation, the Company has raised capital through the issuance of capital stock on several occasions which, may have resulted in such an ownership change, or could result in an ownership change in the future upon subsequent disposition. The Company intends to complete a study in the future to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company's formation.