Income Taxes

12 Months Ended

Dec. 31, 2019

The components of income before taxes are as follows (in thousands):


	Year Ended December 31,
	2019		2018
United States	$	(52,415)	$	(37,630)
International	—		—
	$	(52,415)	$	(37,630)

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


	Year Ended December 31,
	2019		2018
Tax at federal statutory rate	$	(11,007)	$	(7,902)
State taxes, net of federal benefit	(2,270)		(1,582)
Permanent differences	(4,731)		289
Loss on Series C warrant liability	5,330		2,500
Change in valuation allowance	12,797		6,197
General business credits	(319)		136
Other	208		376
Provision for income taxes	$	8	$	14

The Company's provision for income taxes are included within other income (expense) on the statements of operations and comprehensive loss.

Significant components of the Company’s net deferred tax assets as of December 31, 2019 and 2018 consist of the following (in thousands):


	December 31,
	2019		2018
Deferred tax assets:
Net operating loss carryforwards	$	44,574	$	33,815
Research and development credits	5,287		4,944
Capitalized start-up costs/Intangibles	11		16
Accruals and reserves	2,227		1,169
Property and equipment	188		82
Stock-based compensation	568		274
Operating lease liability	1,133		—
Total deferred tax assets	53,988		40,300
Less: Valuation allowance	(53,126)		(40,300)
Deferred tax liabilities:
Operating lease asset	(862)		—
Total deferred tax liabilities	(862)		—
Net deferred tax assets	$	—	$	—

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management believes it is more likely than not that the deferred tax assets will not be realized; accordingly, a valuation allowance has been established on U.S. net deferred tax assets. The valuation allowance increased $12,826,000 during the year ended December 31, 2019 and increased by $6,197,000 during the year ended December 31, 2018.

As of December 31, 2019, the Company had net operating loss carryforwards of approximately $167,948,000 and $148,380,000 for federal and state income tax purposes, respectively. The federal and state net operating loss carryforwards begin to expire in 2027 and 2028, respectively. Federal NOL carryforwards generated in tax years beginning in 2018 are not subject to expiration. Federal NOLs that arose on or after January 1, 2018 can be carried forward indefinitely against future income, but can only be used to offset a maximum of 80% of the Company's federal taxable income in any year.

The federal and state net operating loss carryforwards may be subject to significant limitations under Section 382 and Section 383 of the Internal Revenue Code and similar provisions under state law. Federal tax legislation enacted in December 2017, commonly known as the Tax Cuts and Jobs Act, contains provisions that limit the federal net operating loss carryforwards that may be used in any given year in the event of special occurrences, including significant ownership changes. A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders, who own at least 5% of the Company’s stock, increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. The Company may have previously experienced, and may in the future experience, one or more Section 382 “ownership changes,” including in connection with the Company’s initial public offering. If so, the Company may lose some or all of the tax benefits of its NOLs and tax credits. The extent of such limitations for prior years, if any, has not yet been formally determined.

At December 31, 2019, the Company had $4,320,000 and $2,860,000 of federal and state research and development credit carryforwards, respectively. If not utilized, the federal credits will expire beginning in 2027. The California Research and Development credits can be carried forward indefinitely.

As of December 31, 2019, the Company had $1,436,000 of unrecognized tax benefits. The Company does not have any tax positions for which it is reasonably possible that the total amount of gross unrecognized would increase or decrease within twelve months of the year ended December 31, 2019. If recognized, $0 would affect the effective tax rate.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. There was no such expense recorded during the years ended December 31, 2019 and 2018.

A reconciliation of the unrecognized tax benefits from January 1, 2018 to December 31, 2019 is as follows (in thousands):


	December 31,
	2019		2018
Balance at the beginning of year	$	1,348	$	615
Increases related to current years’ tax positions	88		118
Increases/(decreases) related to prior years’ tax positions	—		615
Balance at end of year	$	1,436	$	1,348

The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception. As a result of the Company’s net operating loss carryforwards, all of its tax years are subject to federal and state tax examination.