Note 16. Income Taxes

Income (loss) before provision for income taxes was attributed to the following jurisdictions for the years ended December 31, 2019 and 2018:


	Years Ended December 31,
	2019		2018
	(000’s)
United States	$	(18,321)	$	(9,233)
Foreign		51		(303)
	$	(18,270)	$	(9,536)

The provision for income taxes consists of the following for the years ended December 31, 2019 and 2018:


	Years Ended December 31,
	2019		2018
	(000’s)
Current:
Federal	$	—	$	—
State		41		20
Foreign		—		—
Total current expense		41		20

Deferred:
Federal		(2,125)		(1,167)
State		5		(399)
Foreign		9		(60)
Change in valuation allowance		2,132		1,626
Total deferred expense		21		—

Total provision for income taxes	$	62	$	20

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2019 and 2018 are shown below:


	December 31,
	2019		2018
Deferred tax assets:	(000’s)
Net operating loss carryforward	$	17,031	$	16,272
Research credits		—		167
Expenses recognized for granting of options and warrants		3,816		2,566
Accrued expenses and reserves		383		83
Lease liability		1,217		—
Total deferred tax assets		22,447		19,088
Valuation allowance		(21,220)		(19,088)
	$	1,227	$	—
Deferred tax liabilities:
Goodwill	$	(110)	$	—
Right-of-use assets		(1,138)		—
Total deferred tax liability		(1,248)		—
Net deferred tax liability	$	(21)	$	—

The Company maintains a deferred tax liability in the amount of $20,900 related to indefinite-lived assets that have been netted against deferred tax assets that also allow for indefinite carryforward periods subject to limitations. The remaining taxable temporary difference cannot serve as a source of future taxable income to realize deferred tax assets, as the net deferred tax liability will not reverse until the assets are sold or impaired for financial reporting purposes.

The provision for income taxes differs from that computed using the federal statutory rate applied to loss before provision for income taxes as follows:


	December 31,
	2019		2018
	(000’s)
Computed tax benefit at federal statutory rate	$	(3,837)	$	(2,002)
State tax, net of federal benefit		(610)		(348)
Stock compensation		1,465		472
Interest expense		286		—
Warrant inducement and repricing costs		—		189
Permanent differences and other		(126)		58
Contingencies		753		24
Valuation allowance		2,131		1,627
	$	62	$	20

At December 31, 2019, the Company has federal and state net operating loss carryforwards of approximately $58,171,000 and $51,188,000, respectively, which will begin to expire in 2020, unless previously utilized, and will expire in 2028 for state carryforwards. In addition, the Company has federal net operating losses of $9,004,000 generated after 2017 that can be carried over indefinitely and may be used to offset up to 80% of federal taxable income. At December 31, 2019, the Company has foreign net operating loss carryforwards of approximately $250,300, which begin to expire in 2027. At December 31, 2019, the Company has federal and California research and development tax credits of approximately $167,000 and $148,000, respectively. The federal research tax credit begins to expire in 2026 unless previously utilized and the California research tax credit has not expiration date.

Utilization of the net operating loss ("NOL") and research and development ("R&D") carryforwards might be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state and foreign provisions. 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. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Since the Company’s formation, the Company has raised capital through the issuance of capital stock on several occasions which, combined with the purchasing stockholders’ subsequent disposition of those shares, may have resulted in such an ownership change, or could result in an ownership change in the future upon subsequent disposition.

The Company has not completed a study to assess whether an ownership change has occurred. If the Company has experienced an ownership change, utilization of the NOL or R&D credit carryforwards would be subject to an annual limitation under Section 382 of the Code, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOL or R&D credit carryforwards before utilization. Further, until a study is completed and any limitation is known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact its effective tax rate. Any carryforwards that will expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance.

A reconciliation of the beginning and ending amounts of unrecognized tax positions are as follows (in thousands):


	December 31,
	2019		2018
Unrecognized tax positions, beginning of period	$	48	$	24
Gross increase – current period tax positions		239		27
Gross decrease – prior period tax positions		—		(2)
Gross increase – prior period tax positions		676		(1)
Expiration of statute of limitations		—		—
Unrecognized tax positions, end of period	$	963	$	48

If recognized, none of the unrecognized tax positions would impact the Company’s income tax benefit or effective tax rate as long as the Company’s deferred tax assets remain subject to a full valuation allowance. The Company does not expect any significant increases or decreases to the Company’s unrecognized tax positions within the next 12 months.

The Company's practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company had no accrual for interest and penalties on the Company's consolidated balance sheets and has not recognized interest and penalties in the consolidated statements of operations for the years ended December 31, 2019 and 2018.

Due to the NOL carryforwards, the U.S. federal and state returns are open to examination by the Internal Revenue Service and state jurisdictions for all years beginning with the year ended March 31, 2001.