11.

Income Taxes

The geographical breakdown of loss before provision for income taxes is as follows:


	Year Ended December 31,
	2016			2015			2014
	(in thousands)
United States	$	(48,244	)	$	(53,376	)	$	(23,872	)
International		520			171			1

Loss before provision for income taxes	$	(47,724	)	$	(53,205	)	$	(23,871	)

The components of the provision for income taxes are as follows:


	Year Ended December 31,
	2016			2015			2014
	(in thousands)
Current tax provision:
Federal	$	—		$	—		$	—
State		—			—			—
Foreign		170			59			4

Total current tax provision		170			59			4

Deferred tax provision (benefit):
Foreign		(27	)		(4	)		(2	)

Total deferred tax provision (benefit)	$	(27	)	$	(4	)	$	(2	)

Total provision for income taxes	$	143		$	55		$	2

The reconciliation between income taxes computed at the federal statutory income tax rate and the provision for income taxes is as follows:


	Year Ended December 31,
	2016			2015			2014
	(in thousands)
Federal statutory rate		34.0	%		34.0	%		34.0	%
Effect of:
Change in valuation allowance		(33.5	)		(27.8	)		(37.3	)
Federal tax credit		1.6			2.6			1.8
State income tax benefit, net of federal benefit		0.1			2.9			4.0
Conversion costs		—			—			—
Change in fair value of preferred stock warrants		—			(11.1	)		(2.0	)
Other permanent items		(2.5	)		(0.7	)		(0.5	)

Total provision for income taxes		(0.3	)%		(0.1	)%		—	%

The components of the deferred tax assets are as follows:


	December 31,
	2016			2015
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	35,244		$	21,482
Research and development credits		2,597			1,923
License fee		3,339			3,413
Stock Based Compensation		2,291			1,042
Other		1,017			607

Gross deferred tax assets		44,488			28,467
Valuation allowance		(44,440	)		(28,448	)

Total deferred tax assets		48			19

Deferred tax liabilities:
Other		12			10

Total deferred tax liabilities		12			10

Total net deferred tax assets	$	36		$	9

Recognition of deferred tax assets is appropriate when realization of these assets is more likely than not. Based upon the weight of available evidence, which includes historical operating performance and the recorded cumulative net losses in prior fiscal periods, the Company recorded a full valuation allowance of $44.4 million and $28.4 million against the net U.S. deferred tax assets as of December 31, 2016 and 2015. The net valuation allowance increased by $16.0 million for the year ended December 31, 2016 and increased by $14.8 million for the year ended December 31, 2015.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Based on the weight of all evidence, including a history of operating losses and the Company’s ability to generate future taxable income to realize the assets, management has determined that it is more likely than not that the deferred tax assets will not be realized.

As a result of certain realization requirements of Accounting Standards Codification (ASC) 718, Compensation—Stock Compensation, the table of deferred tax assets and liabilities above does not include certain deferred tax assets as of December 31, 2016, that arose directly from tax deductions related to equity compensation that are greater than the compensation recognized for financial reporting. Equity will be increased by $0.2 million if and when such deferred tax assets are ultimately realized.

As of December 31, 2016, the Company has federal operating loss carryforwards of $97.6 million and state operating loss carryforwards of $53.7 million, expiring in years ranging from 2021 to 2036. The Company also had net tax credit carryforwards of $2.6 million which begin to expire in 2031.

Utilization of the Company’s net operating loss and research and development credit carryforwards to offset taxable income are subject to an annual limitation, pursuant to Internal Revenue Code (IRC) Sections 382 and 383. As a result of stock offerings that occurred prior to 2016, subsequent changes in the stock ownership, and the stock offering in February 2017, an ownership change under Section 382 is deemed to have occurred. As such, a significant portion, or all, of the accumulated U.S. federal and state operating loss carryforwards and the net tax credit carryforwards mentioned above will not be available for future use. The Company does not expect there to be any impact on the financial statements since the net U.S. deferred tax assets are offset by a full valuation allowance.

Uncertain Tax Positions

The activity related to the gross amount of unrecognized tax benefits is as follows:


	Year Ended December 31,
	2016		2015			2014
	(in thousands)
Beginning balance	$	232	$	162		$	58
Increases based on tax positions related to prior years		—		—			—
Decreases based on tax positions related to prior years		—		(77	)		—
Increases based on tax positions in current year		79		147			104
Settlement		—		—			—
Lapse of statute of limitations		—		—			—

Ending balance	$	311	$	232		$	162

If recognized, gross unrecognized tax benefits would not have an impact on the Company’s effective tax rate due to the Company’s full valuation allowance position. While it is often difficult to predict the final outcome of any particular uncertain tax position, the Company does not believe that the amount of gross unrecognized tax benefits will change significantly in the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying consolidated statement of operations. Accrued interest and penalties, if applicable, are included in accrued liabilities in the consolidated balance sheet. For the years ended December 31, 2016 and 2015, the Company did not recognize any accrued interest and penalties.

The Company is subject to taxation in the United States, various states, Canada and Australia. Tax years 2013 through 2015 remain open to examination by the United States and various state jurisdictions. The 2014 and 2015 tax year remains open to examination in Canada. The Company is not currently under examination by the Internal Revenue Service or any other jurisdiction for any year.