11.	Income Taxes

The Company has incurred cumulative operating losses since inception and, consequently, has not recorded any income tax expense for the years ended December 31, 2016 and 2015 due to its net operating loss position.

The reconciliation of the federal statutory income tax rate to the Company’s effective tax rate for the years ended December 31, 2016 and 2015 are as follows:

	Year Ended December 31,
	2016			2015
Tax at statutory federal rate		34.00	%		34.00	%
State Tax (benefit)—net of federal benefit		1.12	%		1.33	%
Permanent differences		7.95	%		-8.00	%
R&D Credits		3.16	%		11.59	%
Derecognition due to Sec. 382 and 383 Limitations		0.00	%		-240.87	%
Change in Valuation Allowance		-46.66	%		204.17	%
Other		0.43	%		-2.22	%
Effective tax rate		—			—

Significant components of the Company’s deferred tax assets as of December 31, 2016 and 2015 consist of the following (in thousands):

	Year Ended December 31,
	2016			2015
Deferred tax assets:
Accruals and reserves	$	1,137		$	1,285
Net Operating Loss Carry forwards		25,944			17,650
R&D Tax Credit Carry forwards		3,174			2,625
Fixed and intangible assets		114			95
Valuation Allowance		(30,369	)		(21,655	)
Net deferred tax assets:		—			—

Based on the available objective evidence at December 31, 2016, the Company does not believe it is more likely than not that the net deferred tax assets will be realizable. Accordingly, the Company has provided a full valuation allowance against its net deferred tax assets at December 31, 2016 and 2015.

As of December 31, 2016, after consideration of certain limitations (see below), the Company had approximately $68.3 million federal and $46.6 million state net operating loss carry forwards (“NOL”) available to reduce future taxable income which, if unused, will begin to expire in 2025 for federal and 2017 for state tax purposes.

As of December 31, 2016, the Company also had tax credit carry forwards available to offset future tax liabilities of approximately $0.5 million for federal and $5.6 million for state. The federal tax credit will begin to expire in 2024 and the state tax credit does not expire.

If the Company experiences a greater than 50 percentage point aggregate change in ownership over a three-year period (a Section 382 ownership change), utilization of its pre-change NOL carry forwards are subject to annual limitation under Section 382 of the Internal Revenue Code (California has similar provisions). The annual limitation is determined by multiplying the value of the Company’s stock at the time of such ownership change by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the NOL carry forwards before utilization. The Company has determined that ownership changes occurred on December 31, 2007 and August 20, 2015. Approximately $76.3 million and $56.1 million of the NOLs will expire unutilized for federal and California purposes, respectively. The Company has derecognized NOL related deferred tax assets in the tax affected amounts of $25.9 million and $3.3 million for federal and California purposes, respectively.

All of the federal R&D credits could expire unutilized as well, whereas none of the California R&D credits are subject to expiration. Approximately $5.6 million of gross federal R&D credit-related deferred tax assets were derecognized due to the Section 383 limitation. The ability of the Company to use its remaining NOL carry forwards may be further limited if the Company experiences a Section 382 ownership change as a result of future changes in its stock ownership.

Accounting for Uncertainty in Income Taxes

The Company only recognizes tax benefits if it is more likely than not that they will be sustained upon audit by the relevant tax authority based upon their technical merits. An uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained.

The Company had approximately $1.5 million and $1.3 million of unrecognized tax benefits as of both December 31, 2016 and 2015. As the Company has a full valuation allowance on its deferred tax assets, the unrecognized tax benefits have reduced the deferred tax assets and the valuation allowance in the same amount. The Company does not expect the amount of unrecognized tax benefits to materially change in the next twelve months. A reconciliation of the beginning and ending balance of the unrecognized tax benefits is as follows (in thousands):

Beginning Balance at January 1, 2015	$	2,570
Increase/(Decrease) of unrecognized tax benefits taken in prior years		(1,347	)
Increase/(Decrease) of unrecognized tax benefits related to current year		91
Ending Balance at December 31, 2015	$	1,314

Beginning Balance at January 1, 2016	$	1,314
Increase/(Decrease) of unrecognized tax benefits taken in prior years		6
Increase/(Decrease) of unrecognized tax benefits related to current year		219
Ending Balance at December 31, 2016	$	1,539

Interest and penalty related to unrecognized tax benefits would be included as income tax expense in the Company’s consolidated statements of operations. As of December 31, 2016 and 2015, the Company had not recognized any tax-related penalties or interest in its consolidated financial statements.

The Company files income tax returns in the United States and California. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions. As of December 31, 2016 and 2015, the Company had no uncertain tax positions which affected its financial position and its results of operations or its cash flow, and will continue to evaluate for uncertain positions in the future. The Company is subject to United States federal and state income tax examinations by authorities for all tax years due to accumulated net operating losses that are being carried forward for tax purposes.