10 .	Income Taxes

No provision for income taxes has been recorded due to the net operating losses incurred from inception to date, for which no benefit has been recorded.

A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows:

	Year Ended
	December 31,
	2016			2015

Income tax provision (benefit) at statutory rate		(34	)%		(34	)%
State income taxes, net of federal benefit		(2	)%		(6	)%
Change in valuation allowance		33	%		39	%
Other		3	%		1	%
Effective tax rate		-	%		-	%

The components of the Company’s net deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2016			2015
Deferred tax assets:
Net operating loss carryforwards	$	16,888		$	10,726
Capitalized start up costs		5,944			7,225
Research and development credits		518			248
Accruals and reserves		1,095			497
Total deferred tax assets		24,445			18,696
Deferred tax liabilities:
Fixed assets and depreciation		(7	)		(8	)
Valuation allowance		(24,438	)		(18,688	)

Net deferred tax assets	$	-		$	-

The Company has recorded a full valuation allowance for its deferred tax assets based on it past losses and the uncertainty regarding the ability to project future taxable income. The valuation allowance increased by approximately

$5,750,000

and

$4,822,000

during the years ended

December

31,

2016

and

2015,

respectively.

As of

December

31,

2016,

the Company has net operating loss (“NOL”) carryforwards for federal and state income tax purposes of approximately

$45,468,000

and

$24,498,000,

respectively, which expire beginning in the year

2017.

The Company also has federal and California research and development tax credits of approximately

$440,000

and

$454,000,

respectively. The federal research credits will begin to expire in

2027

and the California research and development credits have no expiration date.

Utilization of the NOL and research and development credit carryforwards

may

be subject to a substantial annual limitation due to ownership changes that have occurred previously or that could occur in the future, as provided by Section

382

of the Internal Revenue Code of

1986,

as well as similar state provisions. Ownership changes

may

limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section

382,

results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than

percentage points over a

three

-year period. If the Company has experienced a change of control, utilization of its NOL or tax credits carryforwards would be subject to an annual limitation under Section

382.

Any limitation

may

result in expiration of a portion of the NOL or research and development credit carryforwards before utilization. Subsequent ownership changes could further impact the limitation in future years. Until a Section

382

study is completed and any limitation known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s NOL carryforwards and research and development credit carryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no net impact to the balance sheet or statement of operations if an adjustment were required.

As of

December

31,

2016,

the Company had

not

accrued any interest or penalties related to uncertain tax positions.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Year Ended
	December 31,
	2016		2015

Balance at the beginning of the year	$	128	$	97
Additions based upon tax positions related to the current year		140		31
Balance at the end of the year	$	268	$	128

If the ending balance of

$268,000

of unrecognized tax benefits as of

December

31,

2016

were recognized, none of the recognition would affect the income tax rate. The Company does not anticipate any material change in its unrecognized tax benefits over the next

twelve

months. The unrecognized tax benefits

may

change during the next year for items that arise in the ordinary course of business.

The Company files U.S. federal and state income tax returns with varying statutes of limitations. All tax years since inception remain open to examination due to the carryover of unused net operating losses and tax credits.