

(in thousands)	Year Ended December 31,
Current:	2019		2018		2017
Federal	$	—	$	—	$	—
State	9		1		5
	$	9	$	1	$	5

Deferred:
Federal	$	—	$	—	$	—
State	—		—		—
	$	—	$	—	$	—

Provision for income tax	$	9	$	1	$	5

The Company has provided a 100% valuation allowance on its deferred tax assets. Provision for income taxes in 2019, 2018 and 2017 is primarily for taxes payable to the states.

A reconciliation of income tax expense from continuing operations to the amount computed by applying the statutory federal income tax rate to the net loss from continuing operations is summarized as follows:



	Year Ended December 31,
(in thousands)	2019			2018			2017
U.S. income tax at federal statutory rate	$	(2,611	)	$	(6,276	)	$	(10,329	)
State income tax, net of federal benefits	(2,550		)	(1,072		)	(1,041		)
Stock warrant liability	2,626			—			—
Share-based compensation	(21,236		)	(615		)	81
Research and development credits	(8		)	(6		)	(4		)
Return to provision and other	—			29			—
Change in tax rates	73			668			11,783
Other	(98		)	363			470
Change in valuation allowance	23,813			6,910			(955		)
Provision for income tax	$	9		$	1		$	5

Significant components of the Company's deferred tax assets and liabilities as of December 31, 2019 and 2018 are shown below. A valuation allowance has been recorded to offset the net deferred tax assets as of December 31, 2019 and 2018, as the realization of such assets does not meet the more-likely-than-not threshold.



	December 31,
(in thousands)	2019		2018
Deferred Tax Assets:
Net operating loss (NOL)	$	50,663	$	29,634
Intangibles	1,252		1,407
Share-based compensation	2,704		83
Interest	—		148
Inventory reserve	1,509		—
Other	204		628
Total gross deferred tax assets	56,332		31,900
Deferred Tax liabilities:
Property, plant and equipment	904		283
Total gross deferred tax liabilities	904		283

Valuation allowance	55,428		31,617
Net deferred tax assets (liabilities)	$	—	$	—

As of December 31, 2019, and 2018, management assessed the realizability of deferred tax assets and evaluated the need for an amount of a valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, Income Taxes, pursuant to which management analyzed all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more likely than not (a probability level of more than 50%) that they will not be realized.

In concluding on the evaluation, management placed significant emphasis on guidance in ASC 740, which states that “a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome.” Based upon available evidence, it was concluded on a more-likely-than-not basis that certain deferred tax assets were not realizable as of December 31, 2019. Accordingly, a valuation allowance of $55.4 million has been recorded to offset these deferred tax assets. The change in valuation allowance for the year ended December 31, 2019 from 2018 was an increase of $23.8 million.

As of December 31, 2018, the Company has accumulated federal and state net operating loss carryforwards of approximately $119.7 million and $92.3 million, respectively. As of December 31, 2019, the Company has accumulated federal and state net operating loss carryforwards of approximately $209.5 million and $143.8 million, respectively. Approximately $117.7 million of the federal net operating losses do not expire and the remaining federal and state tax loss carryforwards begin to expire in 2031 and 2032, respectively, unless previously utilized.

Utilization of the Company’s net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration or elimination of the net operating loss and tax credit carryforwards before utilization. The Company is currently analyzing ownership shifts since inception to determine the limitation, if any.

The Company adopted ASU 2016-09 in the first quarter of 2018. Under ASU 2016-09, the Company no longer records excess tax benefits and certain tax deficiencies related to share-based payments to employees in additional paid-in capital. Instead, the Company will recognize all income tax effects of share-based awards in its statement of operations when awards vest or are settled. All excess tax benefits not previously recognized were to be recorded to retained earnings as a cumulative effect adjustment upon adoption. Upon adoption, no adjustment to retained earnings was necessary due to the Company’s valuation allowance position. In 2018, approximately $0.2 million attributable to excess tax benefits on share-based compensation that had not been previously recognized were added to the NOL with a corresponding increase to the valuation allowance.

The Tax Cuts and Jobs Act or the Tax Act was enacted in the United States on December 22, 2017. The Tax Act reduced the United States federal corporate income tax rate to 21% from 35%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign-sourced earnings. In 2017 the Company recorded provisional amounts for certain enactment-date effects of the Tax Act by applying the guidance in Staff Accounting Bulletin No. 118 or SAB 118 because the Company had not yet completed its enactment-date accounting for these effects. The Company completed its accounting for all of the enactment-date income tax effects of the Act as of December 31, 2018 and did not recognize adjustments to the provisional amounts recorded at December 31, 2017.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits at the beginning and end of the years ended December 31, 2019 and 2018:



	Year Ended December 31,
	2019			2018
Gross unrecognized tax benefits at the beginning of the year	$	1,846		$	1,201
Increases related to current year positions	1,695			888
Increases/Decreases related to prior year positions	(205		)	(243		)
Gross unrecognized tax benefits at the end of the year	$	3,336		$	1,846

As of December 31, 2019 and 2018, the Company had $3.1 million and $1.1 million, respectively, of unrecognized tax benefits from research and development tax credits, none of which, if recognized, would affect the Company’s effective tax rate.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2019, 2018 and 2017, interest and penalties recognized were insignificant. The Company does not expect any significant increases or decreases to its unrecognized tax benefits within the next 12 months.

The Company files U.S. federal and state income tax returns in jurisdictions with varying statute of limitations. The Company’s tax years from 2011 (inception) are subject to examination by the United States and state authorities due to the carry forward of unutilized net operating losses and research and development credits.