11. Income Taxes

The Company has accumulated net losses since inception and has not recorded an income tax provision or benefit during the years ended December 31, 2019 and December 31, 2018.

A reconciliation between the statutory rate U.S. federal rate and the Company’s effective tax rate is as follows (in thousands):


	Year Ended December 31,
	2019		2018
Federal income taxat statutory rate	$	(6,233)	$	(4,642)
State income tax, net of federal benefit		(1,293)		(1,300)
Foreign taxdifferential		2,346		733
Permanent differences		394		178
Taxcredits generated in current year		(732)		(783)
Other		840		1
Valuation allowance change		4,678		5,813
	$	—	$	—

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets (in thousands) are as follows:


	Year Ended December 31,
	2019		2018
Net operating loss carryforwards	$	14,519	$	10,228
Accruals and reserves		1,292		1,053
Research and development credits		1,534		1,368
Deferred revenue		—		6
Depreciation and amortization		(34)		(23)
Total		17,311		12,632
Valuation allowance		(17,311)		(12,632)
Net deferred taxassets	$	—	$	—

A reconciliation of the beginning and ending amount of the Company’s liability for uncertain tax positions (in thousands) is as follows:


	Years Ended December 31,
	2019		2018
Balance at the beginning of the year	$	486	$	213
Increase based on current year tax positions		254		271
Increase (decrease) for prior year tax positions		(206)		2
Balance at the end of the year	$	534	$	486

Due to the existence of the valuation allowance, future changes in the Company’s liability for uncertain tax positions will not impact the Company’s effective tax rate. The Company does not anticipate that there will be a substantial change in its liability for uncertain tax positions in the next twelve months.

Tax Legislation subjects a U.S. shareholder to tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI in the year the tax is incurred. The Company does not have a GILTI inclusion in 2019 or 2018; therefore, no GILTI tax has been recorded for the year ended December 31, 2019 and December 31, 2018.

Based on the available objective evidence, management believes it is more-likely-than-not that the deferred tax assets were not fully realizable as of December 31, 2019 and 2018. Accordingly, the Company has established a full valuation allowance against its deferred tax assets. The net change in the valuation allowance for the years ended December 31, 2019 and 2018 was approximately $4.7 million and $5.8 million, respectively.

At December 31, 2019, the Company had federal net operating loss carryforwards of approximately $19.5 million that begin to expire in 2034. The Company also has federal net operating losses of approximately $31.8 million that arose after the 2017 tax year and will carryforward indefinitely. The Company has state net operating loss carryforwards of approximately $53.6 million that will begin to expire in 2034. At December 31, 2019, the Company has research credit carryforwards of approximately $1.7 million and approximately $437,000 for federal and California state income tax purposes, respectively. The federal credits begin to expire in 2034 and the state credits can be carried forward indefinitely.

Under the Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s net operating loss and research tax credit carryforwards to offset taxable income may be limited based on cumulative changes in ownership. The Company has not completed an analysis to determine whether any such limitations have been triggered as of December 31, 2019. The Company has no income tax affect due to the recognition of a full valuation allowance on the expected tax benefits of future loss carry forwards based on uncertainty surrounding realization of such assets. Any annual limitation may result in the expiration of net operating losses and credits before utilization. The Company may continue to experience ownership changes in the future as a result of, future expected equity financings and subsequent shifts in its stock ownership, some of which may be outside of its control.

The Company is subject to taxation in the United States, California, the Netherlands and China. The Company remains subject to possible examination by tax authorities in these jurisdictions for tax years dating back to 2014. The Company does not have any pending tax examinations.