13. Income Taxes

The effective tax rate for the years ended December 31, 2019 and 2018 was zero percent. A reconciliation of income tax computed at the statutory federal income tax rate to the provision (benefit) for income taxes included in the accompanying consolidated statements of operations and comprehensive loss is as follows:


	For the Year Ended December 31,
	2019		2018
Income tax (benefit) provision at federal statutory rate	21.0	%	21.0	%
State income tax, net of federal benefit	6.3		6.3
Acquired in-process research and development expense	(15.6)		—
Valuation allowance	(10.4)		(27.9)
Convertible notes	(1.6)		—
Research credits	0.8		1.0
Other	(0.5)		(0.4)
Effective tax rate	—	%	—	%

Loss before provision for taxes for the years ended December 31, 2019 and 2018 consisted of the following (in thousands):


	Year Ended December 31,
	2019		2018

Loss before Income taxes:
Domestic	$	(20,935)	$	(15,313)
Foreign		(377)		(216)
	$	(21,312)	$	(15,529)

The components of income tax provision (benefit) consisted of the following for the years ended December 31, 2019 and 2018 (in thousands) :


	Year Ended December 31,
	2019		2018

Tax Provision (Benefit):
Current
Domestic	$	—	$	—
Foreign		—		—
Total current tax provision (benefit)		—		—

Deferred
Domestic		(7,085)		(4,283)
Foreign		(94)		(54)
Total deferred tax provision (benefit)		(7,179)		(4,337)

Change in valuation allowance - Domestic		7,085		4,283
Change in valuation allowance - Foreign		94		54

Total tax provision (benefit)	$	—	$	—

Significant components of the Company’s deferred tax assets and liabilities are summarized in the tables below as of (in thousands):


	Year Ended December 31,
	2019		2018

Deferred tax assets:
Federal and state operating loss carryforwards	$	8,805	$	1,791
Foreign operating loss carryforwards		148		54
Acquired intangibles		2,167		2,315
Stock-based compensation		32		—
Lease liability		32		—
Other		29		—
Research and development credit carryforwards		341		185
		11,554		4,345
Valuation allowance - Domestic		(11,372)		(4,288)
Valuation allowance - Foreign		(148)		(54)
Total deferred tax assets, net of valuation allowance		34		3

Deferred tax liabilities:
ROU asset		(32)		—
Other		(2)		(3)
Net deferred tax assets	$	—	$	—

As of December 31, 2019 and 2018, the Company had deferred tax assets of approximately $11.6 million and $4.3 million, respectively. Realization of the deferred tax assets is primarily dependent upon future taxable income, if any, the amount and timing of which are uncertain. The Company has had significant pre‑tax losses since its inception. The Company has not yet generated revenues and faces significant challenges to becoming profitable. Accordingly, the deferred tax assets have been fully offset by a valuation allowance of $11.6 million and $4.3 million as of December 31, 2019 and 2018, respectively. U.S. deferred tax assets will continue to require a valuation allowance until the Company can demonstrate their realizability through sustained profitability or another source of income.

As of December 31, 2019 and 2018, the Company’s federal net operating loss carryforwards were approximately $32.1 million and $6.5 million, respectively. The Company had federal research credit carryforwards as of December 31, 2019 and 2018 of approximately $0.1 million. The federal net operating loss incurred prior to January 1, 2018 will begin to expire in 2034 and tax credit carryforwards will begin to expire in 2038 if not utilized. Federal net operating losses incurred after December 31, 2017 will not expire. As of December 31, 2019 and 2018, the Company had state net operating loss carryforwards of approximately $32.5 million and $6.7 million, respectively. The Company had state research credit carryforwards of $0.2 million and $0.1 million as of December 31, 2019 and 2018, respectively. The state net operating loss carryforwards will begin to expire in 2026, if not utilized, and the state research credit carryforwards will begin to expire in 2033 if not utilized. Lastly, the Company had foreign net operating loss carryforwards of approximately $0.6 million and $0.2 million as of December 31, 2019 and 2018, respectively. The foreign net operating loss carryforwards will begin to expire in 2028.

Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. Generally, in addition to certain entity reorganizations, the limitation applies when one or more “5-percent shareholders” increase their ownership, in the aggregate, by more than 50 percentage points over a 36‑month testing period, or beginning the day after the most recent ownership change, if shorter. The annual limitation may result in the expiration of net operating losses and credits before utilization. As a result of the Merger, the Company recorded deferred tax assets of $4.9 million which are fully offset by a valuation allowance. The $4.9 million net deferred tax assets do not include federal and state net operating loss carryforwards and federal research and development credit carryforwards that are estimated to expire under Internal Revenue Code Sections 382 and 383 as a result of the Merger.

The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions as of December 31, 2019 and 2018, and as such, no interest or penalties were recorded to income tax expense.

The Company’s corporate returns are subject to examination beginning with the 2016 tax year for federal and state jurisdictions, and beginning with the 2018 tax year for one foreign jurisdiction.