Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.4
Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

13. Income Taxes

No provision for income taxes was recorded for the years ended December 31, 2020, 2019 and 2018. The U.S. federal deferred tax assets generated from the Company’s net operating losses have been fully reserved, as the Company believes it is not more likely than not that the benefit will be realized.  

The following table presents domestic and foreign components of net loss for the periods presented (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Domestic

 

$

(41,599

)

 

$

(34,181

)

 

$

(23,047

)

Foreign

 

 

(143

)

 

 

(906

)

 

 

(120

)

Total

 

$

(41,742

)

 

$

(35,087

)

 

$

(23,167

)

 

In December 2015, the Protecting Americans from Tax Hikes Act of 2015 (“PATH”) was signed into law, which created several new research and development (“R&D”) tax credit provisions, including allowing qualified small businesses to utilize the R&D credit against the employer’s portion of payroll tax up to a maximum of $250,000 per year. The Company qualified as a small business under PATH for years 2016 through 2020. The Company has utilized $373,000, $284,000 and $175,000 of R&D tax credits as a reduction of payroll expenses to offset its payroll tax liabilities for the years ended December 31, 2020, 2019 and 2018, respectively.

The effective tax rate of the provision for income taxes differs from the federal statutory rate as follows:

 

 

 

Year Ended December 31,

 

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

 

Federal statutory income tax rate

 

 

21.0

 

%

 

 

21.0

 

%

 

 

21.0

 

%

State taxes, net of federal benefit

 

 

1.1

 

 

 

 

0.9

 

 

 

 

6.4

 

 

Foreign tax rate differential

 

 

0.0

 

 

 

 

0.2

 

 

 

 

0.1

 

 

Permanent differences

 

 

(2.7

)

 

 

 

(1.7

)

 

 

 

0.3

 

 

Research and development credit

 

 

2.6

 

 

 

 

1.9

 

 

 

 

1.4

 

 

Change in valuation allowance

 

 

(22.0

)

 

 

 

(22.3

)

 

 

 

(29.2

)

 

Provision for income taxes

 

 

 

%

 

 

 

%

 

 

 

%

 

 

The components of the deferred tax assets and liabilities are as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Deferred tax assets

 

 

 

 

 

 

 

 

 

 

 

 

Reserves and accruals

 

$

1,665

 

 

$

1,056

 

 

$

1,009

 

Net operating loss carryforwards

 

 

24,824

 

 

 

16,986

 

 

 

10,985

 

Research and development credit carryforwards

 

 

2,938

 

 

 

2,177

 

 

 

1,194

 

Lease Liabilities

 

 

1,148

 

 

 

1,336

 

 

 

 

Gross deferred tax assets

 

 

30,575

 

 

 

21,555

 

 

 

13,188

 

Valuation allowance

 

 

(29,410

)

 

 

(20,196

)

 

 

(12,560

)

Net deferred tax assets

 

 

1,165

 

 

 

1,359

 

 

 

628

 

Deferred tax liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment

 

 

(469

)

 

 

(557

)

 

 

(628

)

Right-of-use asset

 

 

(696

)

 

 

(802

)

 

 

 

Net deferred tax

 

$

 

 

$

 

 

$

 

 

Realization of the deferred tax assets is dependent upon future taxable income. Since the amount and timing of future income are uncertain, the net deferred tax assets, as of December 31, 2020, and December 31, 2019 have been fully offset by a valuation allowance. The valuation allowance increased approximately $9.2 million, $7.6 million and $5.1 million during the years ended December 31, 2020, 2019, and 2018, respectively.

As of December 31, 2020, the Company had federal net operating loss (“NOL”) carryforward of $109.7 million and a federal research and development tax credit carryforward of $2.4 million. If not utilized sooner, the federal NOL generated through December 31, 2017 and tax credit carryforwards will expire, beginning in 2035. Federal net operating loss carryforwards of $87.6 million generated from years ended after December 31, 2017, carryforward indefinitely. As of December 31, 2020 the Company had a state NOL carryforward of $17.3 million, which will expire beginning in 2035, and a state research and development tax credit carryforward of $1.8 million, which does not expire.

As of December 31, 2020, the Company also had accumulated Australian tax losses of $1.9 million available for carry forward against future earnings, which under relevant tax laws do not expire but may not be available under certain circumstances.

In general, if the Company experiences a greater than 50 percentage point aggregate change in ownership over a three-year period (a Section 382 ownership change), utilization of the Company’s pre-change NOL carryforwards is subject to an annual limitation under Section 382 of the Code and similar California laws. The annual limitation generally is determined by multiplying the value of the Company’s stock at the time of such ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the NOL carryforwards before utilization. The Company has not utilized any NOL carryforwards through December 31, 2020. In addition, the Company’s deferred tax assets are subject to a full valuation allowance, and thus no benefit for deferred tax assets is recorded on the Company’s books. The Company’s ability to use the remaining NOL carryforwards may be further limited if the Company experiences a Section 382 ownership change as a result of future changes in the Company’s stock ownership.

The Company had $0.9 million of unrecognized tax benefits as of December 31, 2020. No liability related to uncertain tax positions is recorded on the financial statements. All uncertain tax positions are currently recorded as a reduction to our deferred tax assets, which are subject to a valuation allowance. If recognized, none of the unrecognized tax benefits would affect the effective tax rate. The Company does not anticipate that the total amounts of unrecognized tax benefits will significantly increase or decrease in the next 12 months. The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes, as necessary. The Company did not recognize any accrued interest and penalties related to gross unrecognized tax benefits related to the year ended December 31, 2020. A reconciliation of our unrecognized tax benefits for the year ended December 31, 2020 is as follows (in thousands):

 

 

 

Unrecognized Income Tax Benefits

 

 

Balance as of December 31, 2019

 

$

 

 

Additions for prior year tax positions

 

 

381

 

 

Additions for current year tax positions

 

 

487

 

 

Balance as of December 31, 2020

 

$

868

 

 

 

The Company files income tax returns in the United States federal jurisdiction, state jurisdictions and Australia. The Company currently has no federal, state or other jurisdictional tax examinations in progress. All years are open for examination by federal, state and Australian authorities.