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Income Taxes
12 Months Ended
Dec. 31, 2019
Income Taxes [Abstract]  
Income Taxes

8. Income Taxes



The pre-tax book loss for the Company was approximately $47 million, $37.5 million and $25.8 million for the years ended December 31, 2019, 2018 and 2017, respectively; these losses were incurred in the U.S., the Company has no foreign subsidiaries. The income tax provision was $0 for the years ended December 31, 2019,  2018 and 2017.  



Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets at December 31, 2019 and 2018 are summarized below (in thousands):











 

 

 

 

 

 



 

 

 

 

 

 



 

December 31,



 

2019

 

2018

Temporary differences

 

$

119 

 

$

111 

Credits

 

 

4,409 

 

 

5,330 

Stock compensation

 

 

5,473 

 

 

2,630 

Lease liability under ASC 842

 

 

1,411 

 

 

 —

Net operating loss carryforwards

 

 

20,755 

 

 

15,365 

Total deferred tax assets before valuation allowance

 

 

32,167 

 

 

23,436 

Valuation allowance

 

 

(30,369)

 

 

(22,696)

Total deferred tax assets after valuation allowance

 

 

1,798 

 

 

740 

Technology deferred tax liability

 

 

(434)

 

 

(740)

Right of use assets under ASC 842

 

 

(1,364)

 

 

 —

Net deferred tax assets

 

$

 —

 

$

 —



In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods in which those temporary differences become deductible. At December 31, 2019 and 2018, management was unable to determine that it was more likely than not that the Company’s deferred tax assets will be realized, and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.



The Company’s effective tax rate is different from the federal statutory tax rate of 21% due primarily to net losses that receive no tax benefit as a result of a valuation allowance recorded for such losses.



Presented below is the reconciliation of the difference between the tax rate computed by applying the U.S. federal statutory tax rate and the effective tax rate for the years ended December 31, 2019, 2018 and 2017:









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Year Ended December 31,



 

2019

 

2018

 

2017

U.S. federal statutory tax rate

 

(21.0)

%

 

(21.0)

%

 

(35.0)

%

Valuation allowance

 

18.0 

 

 

28.0 

 

 

23.0 

 

Tax reform

 

 —

 

 

(2.0)

 

 

18.0 

 

Credits

 

(2.0)

 

 

2.0 

 

 

1.0 

 

State tax benefit and other

 

5.0 

 

 

(7.0)

 

 

(7.0)

 

Effective tax rate

 

 —

%

 

 —

%

 

 —

%



At December 31, 2019, the Company had federal and California state net operating loss carryforwards of approximately $87.8 million and $25.8 million, respectively, these will begin to expire in 2034.  Of the total federal net operating loss (NOL) carryforward of $87.8 million, approximately $62.2 million was generated after tax year 2017 and has an indefinite carryover period; the utilizations of theses NOLs will be limited to 80% of the taxable income in the years in which these NOLs are utilized. Utilization of some of the federal and California net operating loss carry-forwards are subject to annual limitations due to the ‘change in ownership’ provisions of the Internal Revenue Code of 1986 and similar provisions.



At December 31, 2019, the Company had approximately $2.4 million and $2.0 million of federal and California research and development (R&D) credits, respectively. The federal R&D credits begin to expire after 2035 and the California R&D credits have an indefinite carryforward period.



These net operating loss carryforward and R&D credits amounts have full valuation allowances against them due to the remoteness of their expected utilization.



The Company’s activity related to unrecognized tax benefits are summarized below (in thousands):







 

 

 

 

 

 

 

 

 



 

December 31,



 

2019

 

2018

 

2017

Balance at the beginning of the year

 

$

877 

 

$

512 

 

$

213 

Gross increases - tax positions in prior periods

 

 

 —

 

 

 —

 

 

37 

Gross decreases - tax positions in prior periods

 

 

 —

 

 

 —

 

 

 —

Gross increases - tax position in current period

 

 

593 

 

 

365 

 

 

262 

Settlements

 

 

 —

 

 

 —

 

 

 —

Lapses in statutes of limitations

 

 

 —

 

 

 —

 

 

 —

Balance at the end of the year

 

$

1,470 

 

$

877 

 

$

512 



 

 

 

 

 

 

 

 

 





Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, the Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months. During the years ended December 31, 2019, 2018 and 2017, no interest or penalties were required to be recognized related to unrecognized tax benefits. Although the Company is not under examination, the tax years for 2014 and forward are subject to examination by U.S. tax authorities.