The Company accounts for uncertain tax positions in accordance with ASC Topic 740, Income Taxes. The application of income tax law and regulations is inherently complex. Interpretations and guidance surrounding income tax laws and regulations change over time. As such, changes in the Company’s subjective assumptions and judgments can materially affect amounts recognized in its financial statements.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest and penalties on the balance sheet at December 31, 2019. The Company has an uncertain tax position of $2.0 million related to California net operating losses at December 31, 2019. The Company is subject to taxation in the United States and state jurisdictions, and the Company’s tax years beginning 2007 to date are subject to examination by taxing authorities.

Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense.

A reconciliation of the federal statutory income tax rate and the effective income tax rate is as follows for the years ended December 31, 2019 and 2018:

	December 31,
	2019			2018
	(%)			(%)
Federal statutory rate		21			21
Change in valuation allowance		(4	)		(1	)
State income taxes, net of federal effect		7		—
Warrant liability FMV adjustment	—				1
Research and development credits		3			4
Removal of net operating losses and other credits		(27	)		(22	)
Impact of state tax rate change		4		—
Stock compensation and other permanent items		(4	)		(3	)
Effective income tax rate	—			—

Pursuant to Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. Until this analysis has been completed, the Company has removed the deferred tax assets for net operating losses of approximately $19.0 million and a research and development credit of approximately $3.5 million generated through December 31, 2019 from its deferred tax asset schedule, and has recorded a corresponding decrease to its valuation allowance. When this analysis is finalized, the Company plans to update its unrecognized tax benefits accordingly. The Company does not expect this analysis to be completed within the next twelve months and, as a result, the Company does not expect that the unrecognized tax benefits will change within twelve months of this reporting date. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate.

Significant components of the Company’s deferred tax assets at December 31, 2019 and 2018 are as follows:

	December 31,
	2019			2018
Deferred tax assets:
Acquired technology	$	80,000		$	81,000
Stock compensation expense		846,000			574,000
Lease liability		39,000		—
Accruals and other		237,000			244,000
Total deferred tax assets	$	1,202,000		$	899,000
Deferred tax liabilities:
Right of use asset		(39,000	)	—
Total deferred tax liabilities		(39,000	)	—
Less valuation allowance		(1,163,000	)		(899,000	)
Net deferred tax assets (liabilities)	—			—

At December 31, 2019, the Company has federal and California net operating loss carryforwards of approximately $74.5 million and $47.7 million, respectively. The federal and California net operating loss carryforwards begin to expire in 2027 and 2028, respectively, unless previously utilized. The portion of federal net operating losses created after 2017 of approximately $12.6 million do not expire and will carry forward indefinitely. The Company also has federal and California research tax credit carryforwards of approximately $2.3 million and $1.4 million, respectively. The federal research credit carryforwards will begin expiring in 2027 unless previously utilized. The California research credit will carry forward indefinitely. Furthermore, under U.S. tax legislation enacted in December 2017, although the treatment of tax losses generated before December 31, 2017 has generally not changed, tax losses generated in calendar year 2018 and beyond do not expire, but may only offset 80% of the Company’s taxable income. This change may require us to pay federal income taxes in future years despite generating a loss for federal income tax purposes in prior years.

There were no changes to unrecognized tax benefits in 2019 and 2018. As such, the balance of unrecognized tax benefits (excluding interest and penalties) was approximately $2.0 million at December 31, 2019 and 2018.

Due to the full valuation allowance that the Company has on the deferred tax assets, there are no unrecognized tax benefits that would impact the effective tax rate, if recognized.