Income Taxes

The components of the Company’s loss before income taxes are as follows:



	Year ended December 31,
	2019			2018
	(in thousands)
Domestic	$	(37,709	)	$	(16,835	)
Foreign	(694		)	(618		)
Loss before income taxes	$	(38,403	)	$	(17,453	)

There was no provision for income taxes recorded for the years ended December 31, 2019 and 2018. The Company continues to maintain a full valuation allowance against its net deferred tax assets due to the uncertainty surrounding realization of such assets. The Company periodically evaluates the realizability of its net deferred tax assets based on the expected realization and is dependent on the Company's ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets.

On December 22, 2017, the U.S. enacted a law commonly known as the Tax Cuts and Jobs Act (the “Act”) which makes widespread changes to the Internal Revenue Code, including a reduction in the federal corporate tax rate from 35.0% to 21.0%, and move from a worldwide tax system to territorial system. As a result of the enactment of the Act, during the year ended December 31, 2018, the Company recognized a reduction to its deferred tax assets of approximately $15.8 million. The reduction to Company's deferred tax assets did not result in the recognition of provision for income taxes as the Company maintains full valuation allowance on its net deferred tax assets.

The components of deferred income taxes are as follows:



	Year ended December 31,
	2019			2018
	(in thousands)
Federal	$	8,523		$	3,555
State	1,569			822
Foreign	(200		)	200
Total deferred income taxes	9,892			4,577
Change in deferred tax valuation allowance	(9,892		)	(4,577		)
Net deferred income tax	$	—		$	—

Income tax expense differs from the amount computed by applying the statutory federal income tax rate due to the following:



	Year ended December 31,
	2019		2018
Tax at statutory federal rate	(21.0	)%	(21.0	)%
State tax, net of federal benefit	(4.1	)%	(5.3	)%
Tax credits	(0.7	)%	(0.7	)%
Change in deferred tax valuation allowance	25.8	%	26.2	%
Other	—	%	0.8	%
Total income tax expense	—	%	—	%

The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets are presented below:



	Year ended December 31,
	2019			2018
	(in thousands)
Net operating loss carryforwards	$	42,032		$	35,067
Research and development credits	2,428			2,255
Accruals and reserves	4,222			2,059
Stock compensation	1,512			899
Depreciation and amortization	110			132
Total deferred tax assets	50,304			40,412
Less: Valuation allowance	(50,304		)	(40,412		)
Total deferred tax asset, net of valuation allowance	$	—		$	—

The following table summarizes changes in the valuation allowance for the year ended December 31, 2019 and 2018:



	Year ended December 31,
	2019		2018
	(in thousands)
Beginning balance	$	40,412	$	35,835
Additions during the period	9,892		4,577
Ending balance	$	50,304	$	40,412

As of December 31, 2019, the Company had net operating loss (“NOL”) carryforwards of approximately $164.4 million and $129.6 million available to reduce future taxable income, if any, for federal and state income tax purposes, respectively. If not utilized, the Company’s federal NOL carryforward begins to expire in 2028, and the state NOL carryforward begins to expire in 2020.

As of December 31, 2019, the Company had credit carryforwards of approximately $2.1 million and $2.2 million available to reduce future taxable income, if any, for both federal and state income tax purposes, respectively. The federal credits begin to expire in 2029, and the state credits have no expiration date.

The Tax Reform Act of 1986 limits the use of NOL and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. In general, if the Company experiences a greater than 50% aggregate change in ownership over a three-year period (a Section 382 ownership change), utilization of its pre-change NOL carryforwards are subject to an annual limitation under Section 382 of the Internal Revenue Code (California has similar laws). The annual limitation generally is determined by multiplying the value of the Company’s stock at the time of such ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the NOL carryforwards before utilization. The Company has not utilized any NOL carryovers through December 31, 2019. In addition, the Company’s deferred tax assets are subject to full valuation allowance, and thus no benefit for deferred tax assets have been recorded. The Company has determined that it experienced Section 382 ownership changes in 2010 and $1.4 million of its NOL carryforwards are limited. The Company also updated its Section 382 ownership change analysis through June 30, 2019, considering the recent changes in ownership following its IPO in October 2018. Based on the result of the analysis, the Company concluded that it did not undergo ownership change that would require additional limitations on its NOL carryforwards. The Company further concluded that the equity shift between June 30, 2019 to December 31, 2019 was not material, considering the changes in the outstanding number of shares at each respective period. The Company will continually assess the need to update its Section 382 ownership change analysis, as the Company may experience ownership changes in the future that could materially limit its ability to use its NOL carryforwards.

The Company accounts for the uncertainty in income taxes by utilizing a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or are expected to be taken on an income tax return. The changes in the Company’s uncertain income tax positions for the years ended December 31, 2019 and 2018 consisted of the following:



	Year ended December 31,
	2019		2018
	(in thousands)
Balance at beginning of the year	$	1,084	$	993
Increases related to current year's tax positions	203		91
Balance at end of the year	$	1,287	$	1,084

The Company has elected to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. The Company has no accrued interest related to unrecognized tax benefits as of December 31, 2019 and 2018. None of the Company’s unrecognized tax benefits that, if recognized, would affect its effective tax rates for the years ended December 31, 2019 and 2018. The Company does not anticipate the total amounts of unrecognized tax benefits will significantly increase or decrease in the next 12 months.

The Company currently has no federal or state tax examinations in progress nor has it had any federal or state examinations since inception. As a result of the Company’s net operating loss carry forwards, all of its tax years are subject to federal and state tax examinations.