INCOME TAX

12 Months Ended

Dec. 31, 2019

NOTE 11. INCOME TAX

The following table presents the components of our provision for income taxes for the year ended December 31, 2019, and 2018, in thousands:




	Year Ended December 31,
	2019		2018
Current
Foreign	$	—	$	(140	)
Deferred
Federal	—		—
Income tax provision as reported	$	—	$	(140	)

The following table presents a reconciliation between the income tax benefit computed by applying the federal statutory rate and our actual income tax expense:




	Year Ended December 31,
	2019			2018
Income tax benefit at federal statutory rate	$	(4,831	)	$	(3,928	)
Change in deferred tax asset valuation allowance	2,561			11,595
Tax impact of warrants	(266		)	(5,855		)
Tax effects of:
Statutory differences	942			—
R&D expense	(236		)	—
Foreign tax rates different than U.S. federal statutory rate	(350		)	(470		)
Other permanent items	6			78
Deferred adjustments	1,716			(1,369		)
Other	458			(191		)
Income tax provision (benefit) as reported	$	—		$	(140	)

Our 2019 effective tax rate was impacted by maintaining a valuation allowance against net deferred tax assets in all jurisdictions, both domestic and foreign, as well as the adjustments made to our deferred tax assets, permanent book-tax adjustments in foreign jurisdictions and the fact that our earnings are generated in jurisdictions with rates that differ from the US federal statutory rate. Our 2018 effective tax rate was impacted by maintaining a valuation allowance against domestic federal net deferred tax assets and a permanent tax adjustment related to the fair value of the outstanding warrants.

The following table presents loss before income tax attributable to domestic and to foreign operations (in thousands):




	Year Ended December 31,
	2019			2018
Domestic	$	(14,266	)	$	(6,945	)
Foreign	(8,738		)	(11,760		)
Loss before income taxes	$	(23,004	)	$	(18,705	)

Deferred Tax Assets and Liabilities

We assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of existing DTAs in each jurisdiction. A significant piece of objective negative evidence, in each jurisdiction, that we evaluated was the cumulative loss incurred over the three-year period ended December 31, 2019. Such objective evidence limits our ability to consider other subjective evidence. On the basis of our evaluation, as of December 31, 2019, we continued to maintain the valuation allowance noted in the table below. The amount of the DTAs that we do not consider realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for future growth.

The following table presents the components of our DTAs and DTLs (in thousands):



	December 31,
	2019			2018
Deferred Tax Assets
Net operating loss carryforwards	$	38,008		$	36,090
Deferred income and reserves	—			332
Amortization of intangibles	2,535			2,881
Share-based compensation expense	6,929			7,276
Other	4,000			1,908
Gross deferred tax assets	$	51,472		$	48,487
Valuation allowance	(51,455		)	(48,487		)
Deferred tax assets, net of valuation allowance	$	17		$	—
Deferred Tax Liabilities
Depreciation of fixed assets	(17		)	—
Gross deferred tax liabilities	(17		)	—
Net deferred tax liability	$	—		$	—

Net operating losses available at December 31, 2019 to offset future taxable income in the U.S. federal, U.S. state, Hong Kong and China jurisdictions are $160.6 million, $31.9 million, $1.7 million and $6.8 million, respectively. The statutory income tax rates in Hong Kong and China are 16.5% and 25%, respectively.

The U.S. net operating losses generated prior to 2018 expire between 2020 and 2038. The US net operating losses generated in 2019 and 2018 have no expiration date and carry forward indefinitely. The net operating losses generated in Hong Kong have no expiration date and carry forward indefinitely, while the net operating losses generated in China have a 5-year carryover period.

We file income tax returns in various domestic and foreign tax jurisdictions with varying statutes of limitations. We are currently under examination by the IRS in the U.S. federal jurisdiction regarding our 2016 tax year, while our 2017, 2018 and 2019 tax years generally remain subject to examination by federal and most state tax authorities. In significant foreign jurisdictions, our 2016 through 2018 tax years generally remain subject to examination by the relevant tax authorities.

Under the Internal Revenue Code of 1986, as amended (the “Code”), if an ownership change (as defined for income tax purposes) occurs, §382 of the Code imposes an annual limitation on the amount of a corporation's taxable income that can be offset by net operating loss carryforwards. During our 2014 tax year, we analyzed recent acquisitions and ownership changes and determined that certain of such transactions qualified as an ownership changes under §382. As a result, we will likely not be able to use a portion of our net operating loss carryforwards.

For the years ended December 31, 2019 and 2018, we had no unrecognized tax benefits, and we have not taken any tax positions which we expect might significantly change unrecognized tax benefits during the 12 months following December 31, 2019. We comply with tax legislation and rules that apply in jurisdictions in which we operate around the globe, to the best of our ability. In China, we incur certain business expenses subject to jurisdictionally specific requirements. While we have adhered to such rules, circumstances exist outside of our control that create uncertainty relative to our ability to sustain certain deductions. We believe, at a more likely than not level, we will sustain such deductions; however, taxing authorities in China may take an alternative position.

In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on

March 27, 2020 in the U.S., includes measures to assist companies, including temporary change to income and non-income-based tax laws. We will monitor additional guidance and impact that the CARES Act and other potential legislation may have on our income taxes in subsequent years.