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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes |
(1 2) | Income Taxes
During the years ended December 31, 2019 and 2018, the Company recorded no income tax benefits for the net operating losses incurred due to its uncertainty of reclaiming a benefit for those losses. Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets consist of the following (in thousands):
|  | December 31, |
|  | 2019 |  |  | 2018 |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 46,362 |  |  | $ | 33,275 |
Tax credit carryforwards |  |  | 4,262 |  |  |  | 4,365 |
Accrued expenses |  |  | 37 |  |  |  | 103 |
Deferred rent |  |  | — |  |  |  | 2,209 |
Lease liabilities |  |  | 6,776 |  |  |  | — |
Equity compensation |  |  | 1,481 |  |  |  | 784 |
Amortizable intangibles |  |  | 1,214 |  |  |  | 1,339 |
Other |  |  | 138 |  |  |  | 78 |
Gross deferred tax assets |  |  | 60,270 |  |  |  | 42,153 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Property and equipment |  |  | (1,720 | ) |  |  | (1,863 | )
Right of use assets |  |  | (4,716 | ) |  |  | — |
Gross deferred tax liabilities |  |  | (6,436 | ) |  |  | (1,863 | )
Valuation allowance |  |  | (53,834 | ) |  |  | (40,290 | )
Net deferred tax assets |  | $ | — |  |  | $ | — |
Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of the Company’s deferred tax assets, which are comprised principally of net operating loss carryforwards, and determined that it is more likely than not that the Company will not recognize the benefits of the deferred tax assets. As a result, a full valuation allowance of approximately $53.8 million and $40.3 million was established at December 31, 2019 and 2018, respectively. A reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate is as follows (dollars in thousands):
|  | Years ended December 31, |
|  | 2019 |  |  | 2018 |
|  | Tax Rate |  |  | Tax Rate |
U.S. federal statutory rate |  |  | 21 | % |  |  | 21 | %
State income taxes, net of federal benefit |  |  | 6 | % |  |  | 6 | %
Other permanent differences |  |  | (1 | )% |  |  | (1 | )%
Tax credits |  |  | 0 | % |  |  | 3 | %
Other items |  |  | 0 | % |  |  | (1 | )%
Net change in valuation allowance |  |  | (26 | )% |  |  | (28 | )%
Effective income tax rate |  |  | — |  |  |  | — |
A roll-forward of the valuation allowance for the years ended December 31, 2019 and 2018 is as follows (in thousands):
|  | Years ended December 31, |
|  | 2019 |  |  | 2018 |
Balance at beginning of year |  | $ | (40,290 | ) |  | $ | (26,515 | )
Increase in valuation allowance |  |  | (13,544 | ) |  |  | (13,775 | )
Balance at end of year |  | $ | (53,834 | ) |  | $ | (40,290 | )
As of December 31, 2019 and 2018, the Company had federal net operating loss carryforwards that may be available to reduce future taxable income of approximately $172.9 million and $125.5 million, respectively. Of the $172.9 million of federal net operating loss carryforwards, $79.4 million begin to expire in 2034. The remaining $93.5 of federal net operating loss carryforwards do not expire. The Company also had state net operating loss carryforwards that may be available to reduce future taxable income of approximately $159.0 million and $109.4 million, for the periods ended December 31, 2019 and 2018, respectively. The state net operating loss carryforwards begin to expire in 2029. In addition, at December 31, 2019, the Company had federal and state research and development tax credit carryforwards available to reduce future tax liabilities of approximately $2.5 million and $1.8 million, respectively. Pursuant to Section 382 of the Internal Revenue Code of 1986 (“IRC”), certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss (“NOL”) carryforwards and research and development credit (“R&D credit”) carryforwards that may be used in future years. Utilization of the NOL and R&D credit carryforwards may be subject to a substantial annual limitation under Section 382 of the IRC due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company has not completed a study to assess whether an ownership change has occurred, or whether there have been multiple ownership changes since its formation, due to a significant complexity and related costs associated with such a study. There could be additional ownership changes in the future that may result in additional limitations on the utilization of NOL carryforwards and credits. The Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon the ultimate settlement with the relevant taxing authority. The Company has not recognized any liability for unrecognized tax benefits as of December 31, 2019. The Company files tax returns, on an entity-level basis, as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. Tax years from 2016 to the present are open to examination under the statute. The Company’s policy is to record interest and penalties related to income taxes as part of the tax provision. There are no interest or penalties accrued at December 31, 2019 and 2018.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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