11.	Income Taxes

The Company has incurred cumulative net operating losses since inception and, consequently, has not recorded any income tax expense for the years ended December 31, 2017 and 2016 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, 2017 and 2016 are as follows:

	Year Ended December 31,
	2017			2016
Tax at statutory federal rate		-34.00	%		-34.00	%
State Tax (benefit)—net of federal benefit		0.00	%		-1.12	%
Permanent differences		0.60	%		-7.95	%
R&D credits		-1.64	%		-3.16	%
Derecognition due to Sec. 382 and 383 limitations		54.08	%		0.00	%
Change in valuation allowance		-52.90	%		46.66	%
Federal tax rate change		33.89	%		0.00	%
Other		-0.03	%		-0.43	%
Effective tax rate		—			—

Significant components of the Company’s deferred tax assets as of December 31, 2017 and 2016 consist of the following (in thousands):

	Year Ended December 31,
	2017			2016
Deferred tax assets:
Accruals and reserves	$	1,112		$	1,137
Net operating loss carry forwards		11,519			25,944
R&D tax credit carry forwards		3,545			3,174
Fixed and intangible assets		89			114
Valuation Allowance		(16,265	)		(30,369	)
Net deferred tax assets:	$	—		$	—

Based on the available objective evidence at December 31, 2017, the Company does not believe it is more likely than not that the net deferred tax assets (DTA) will be realizable. Accordingly, the Company has provided a full valuation allowance against its net deferred tax assets at December 31, 2017 and 2016.

As of December 31, 2017, the Company had federal net operating loss carryforwards of approximately $54.8 million and state net operating loss (NOL) carryforwards of approximately $41.1 million. As of December 31, 2016, the Company had federal net operating loss carryforwards of approximately $68.3 million and state net operating loss carryforwards of approximately $46.6 million. If not utilized, the federal net operating loss carryforwards will begin to expire in 2025 through 2038 and state net operating loss carryforwards will expire from 2028 through 2038.

As of December 31, 2017, the Company also had tax credit carry forwards available to offset future tax liabilities of approximately $0.1 million for federal and $4.4 million for state. If unused, the federal credit will begin to expire in 2037 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 carryforwards 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 carryforwards before utilization. As of December 31, 2017, the Company determined that ownership changes occurred December 31, 2007, August 20, 2015, and April 13, 2017. As a result of the ownership changes, approximately $108.9 million and $37.7 million of the NOLs will expire unutilized for federal and California purposes, respectively. As of December 31, 2017, the Company has derecognized NOL related DTAs in the tax affected amounts of $22.9 million and $0 million for federal and California purposes, respectively. The ability of the Company to use its remaining NOL carryforwards may be further limited if the Company experiences a Section 382 ownership change as a result of future changes in its stock ownership.

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 $6.1 million of gross federal R&D credit-related deferred tax assets were derecognized due to the Section 383 limitation.

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 of unrecognized tax benefits as of both December 31, 2017 and 2016. 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, 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
Increase/(Decrease) of unrecognized tax benefits taken in prior years		(126	)
Increase/(Decrease) of unrecognized tax benefits related to current year		62
Ending Balance at December 31, 2017	$	1,475

Interest and penalties related to unrecognized tax benefits would be included as income tax expense in the Company’s consolidated statements of operations. As of December 31, 2017 and 2016, 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 federal, California, and New Jersey state jurisdictions. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions. 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.

On December 22, 2017, the United States government approved a bill reforming the U.S. corporate income tax code which will reduce the corporate tax rate from 34% to 21%. The rate reduction would generally take effect on January 1, 2018. The carrying value of our deferred tax assets is also determined by the enacted U.S. corporate income tax rate. Consequently, any changes in the U.S. corporate income tax rate will impact the carrying value of our deferred tax assets. Under the new corporate income tax rate of 21%, deferred income tax assets will decrease by $7.3 million and valuation allowance will decrease by $7.3 million. The net effect of the tax reform enactment on the Company’s financial statements is $0 as of December 31, 2017.