9. Income Taxes

The income tax provision for the year ended December 31, 2016 was $0. The income tax provision for the year ended December 31, 2015 and the period from May 19, 2014 (inception) through December 31, 2014 was a benefit of $1.7 million and $23,000, respectively. The prior years’ tax benefits resulted from the realization of deferred tax assets related principally to the Company’s net operating loss for the year ended December 31, 2015, offset by deferred tax liability created based upon the difference in the value for book and tax purposes of certain acquired technology assets, which are considered temporary income tax differences under purchase accounting. A full valuation allowance is provided against the Company’s remaining deferred tax assets.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets at December 31, 2016 and 2015 are summarized below (in thousands):



	December 31,
	2016		2015
Technology	$	(1,449)	$	(1,630)
Temporary differences		312		103
Credits		639		198
Net operating loss carryforwards		5,121		1,590
Total deferred tax assets		4,623		261
Valuation allowance		(4,623)		(261)
Net deferred tax assets	$	—	$	—

In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods in which those temporary differences become deductible. At December 31, 2016 and 2015, management was unable to determine that it was more likely than not that the Company’s deferred tax assets will be realized, and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.

The Company’s effective tax rate is different from the federal statutory tax rate of 35% due primarily to net losses that receive no tax benefit as a result of a valuation allowance recorded for such losses.

Presented below is the reconcilement of the difference between the tax rate computed by applying the U.S. federal statutory tax rate and the effective tax rate for the years ended December 31, 2016, 2015 and for the period from May 19, 2014 through December 31, 2014:



					May 19, 2014
					(inception)
	Years Ended				through
	December 31,				December 31,
	2016		2015		2014
U.S. federal statutory tax rate	(35.0)	%	(35.0)	%	(35.0)	%
Valuation allowance	42.0	%	4.0	%	16.0	%
Permanent differences	2.0	%	1.0	%	15.0	%
State tax benefit and other	(9.0)	%	(7.0)	%	(4.0)	%
Effective tax rate	—	%	(37.0)	%	(8.0)	%

At December 31, 2016, the Company had federal and California state net operating loss carryforwards of approximately $11.7 million and $11.5 million, respectively. The federal and state net operating loss carryforwards will begin to expire after 2032. At December 31, 2016, the Company had approximately $0.4 million and $0.4 million of federal and California R&D credits, respectively. The federal R&D credits begin to expire after 2035 and the California R&D credits have an indefinite carryforward period.

These net operating loss carryforward and research and development credit amounts have full valuation allowances against them due to the remoteness of their expected utilization. While the Company has not performed a formal analysis of the availability of these operating loss carryforwards at December 31, 2016 under Internal Revenue Code Sections 382 and 383, management expects that the Company’s ability to use its net operating loss carryforwards may be limited in future periods.

The Company’s activity related to unrecognized tax benefits are summarized below (in thousands):


	December 31,
	2016		2015
Balance, January 1, 2016	$	66	$	—
Gross increases - tax positions in prior periods		—		—
Gross decreases - tax positions in prior periods		—		—
Gross increases - tax position in current period		147		66
Settlements		—		—
Lapses in statutes of limitations		—		—
Balance, December 31, 2016	$	213	$	66

Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, the Company does not anticipate any significant changes to unrecognized tax benefits over the next twelve months. During the years ended December 31, 2016, 2015 and the period from May 19, 2014 to December 31, 2014, no interest or penalties were required to be recognized related to unrecognized tax benefits. Although the Company is not under examination, the tax years for 2014 and forward are subject to examination by United States tax authorities.