. Income Taxes

For the years ended

December

31,

2019

and

2018,

the Company’s provision for income taxes consisted of

zero

state income tax expense. A reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate is as follows (in thousands):

	Year Ended December 31,
	201 9			201 8
Tax at federal statutory rate	$	(4,084	)	$	(5,787	)
State taxes, net of federal benefit		(1,022	)		(1,023	)
Permanent differences		97			228
Change in valuation allowance		5,205			6,582
Research credits		(192	)		—
Other		(4	)		—
Provision for taxes	$	—		$	—

Significant components of the Company’s net deferred tax assets as of

December

31,

2019

and

2018

consist of the following (in thousands):

	As of December 31,
	201 9			201 8
Deferred tax assets:
Federal, state and foreign net operating losses	$	75,863		$	70,286
Research and other credits		4,361			3,655
Operating lease liability		1,237			—
Accruals and other		2,847			4,317
Total deferred tax assets		84,308			78,258
Less: Valuation allowance		(82,755	)		(78,082	)
Total net deferred tax assets		1,553			176
Deferred liabilities:
Fixed assets		(198	)		(176	)
Operating lease right of use asset		(1,355	)		—
Total deferred tax liabilities		(1,553	)		(176	)
Net deferred tax assets (liabilities)	$	—		$	—

The valuation allowance increased by

$4.7

million and increased by

$7.6

million during the years ended

December

31,

2019

and

2018,

respectively.

In connection with the adoption of ASC

842

in the quarter ended

March 31, 2019,

the Company recognized a deferred tax liability in the amount of

$1.4

million related lease liabilities and a deferred tax asset in the amount of

$1.2

million for the year ended

December 31, 2019.

Additionally, the Company decreased the net deferred tax asset by

$6,000,

retroactive to

December 31, 2018.

The net effect of these adjustments to the deferred tax asset and liability is offset with an adjustment to the valuation allowance.

As of

December 31, 2019,

the Company had approximately

$301.0

million of federal and

$216.1

million of state net operating loss carryforwards available to offset future taxable income. If

not

utilized, the federal and state net operating loss carryforwards begin to expire in

2027

and

2019,

respectively. Out of the Federal net operating loss carryforwards,

$43.5

million were generated post

December 31, 2017

and have

expiration.

As of

December 31, 2019,

the Company also had approximately

$3.4

million and

$3.6

million of research and development tax credit carryforwards available to reduce future taxable income, if any, for federal and California purposes, respectively. The federal credit carryforwards expire beginning in

2027,

and the California research credits do

not

expire and

may

be carried forward indefinitely.

The Company's ability to utilize the net operating loss and tax credit carryforwards in the future

may

be subject to substantial restrictions in the event of past or future ownership changes as defined in Section

382

of the Internal Revenue Code and similar state tax laws. In the event the Company should experience an ownership change, as defined, utilization of the Company's net operating loss carryforwards and tax credits could be limited.

The Company evaluates tax positions for recognition using a more-likely-than-

not

recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than

50%

likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information.

A reconciliation of the beginning and ending amount of the gross recognized tax benefit is as follows (in thousands):

	As of December 31,
	201 9		201 8
Balance at beginning of year	$	1,760	$	1,747
Increase based on the tax positions in the current year		177		29
Decrease for tax positions of prior year		157		(16	)
Balance at end of year	$	2,094	$	1,760

As of

December 31, 2019,

all unrecognized tax benefits are subject to a full valuation allowance and, if recognized, will

not

affect the Company’s tax rate.

The Company does

not

anticipate that the total amounts of unrecognized tax benefits will significantly increase or decrease in the next

twelve

months.

The Company's policy is to include interest and penalties related to unrecognized tax benefits within its provision for income taxes. Due to the Company's net operating loss position, the Company has

not

recorded an accrual for interest or penalties related to uncertain tax positions for the years ended

December 31, 2019

2018.