12. Income Taxes

During the year ended December 31, 2016, 2015 and 2014, the Company recorded no income tax benefits for the net operating losses (NOLs) incurred due to the uncertainty of realizing a benefit from those items.

As of December 31, 2016, the Company had federal NOL carryforwards of approximately $20.0 million and state NOL carryforwards of approximately $45.0 million which are available to reduce future taxable income. The NOLs will begin to expire in 2034, if not utilized.

As of December 31, 2016, the Company also had $1.3 million of federal and $1.7 million of state research and development tax credit carryforwards available to reduce future income taxes. The federal research and development tax credits will begin to expire 2035, if not utilized. The state research and development tax credits have no expiration date.

Utilization of NOL carryforwards and credits may be subject to an annual limitation due to the ownership change provisions provided by the Internal Revenue Code of 1986, as amended ("Code"), and similar state provisions. An annual limitation may result in the expiration of NOLs and credits before utilization. In March and April 2016, the Company issued a total of 5.2 million shares of common stock associated with its IPO. In addition, during the third quarter of 2015, the Company issued a new series of convertible preferred stock. The common and preferred stock issuances may have created an ownership change under these provisions of the Code and similar state provisions. As of December 31, 2016, NOLs and credits are not expected to expire unused in the carryforward period as a result of these recent issuances of convertible preferred shares.

The components of loss before income tax is as follows (in thousands):

	2016			2015			2014
Domestic	$	(11,375	)	$	(31,335	)	$	(161	)
Foreign		(25,000	)		—			—

	$	(36,375	)	$	(31,335	)	$	(161	)

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

	December 31, 2016			December 31, 2015			December 31, 2014
Federal tax benefit at statutory rate		34	%		34	%		34	%
State tax, net of Federal benefit		8			3			6
Loss due to change in fair value of convertible preferred stock liability		—			(19	)		—
Foreign rate differential		(23	)		—			—
Change in valuation allowance		(19	)		(18	)		(40	)

Effective income tax rate		0	%		0	%		0	%

The effective tax rate is different from the federal statutory tax rate primarily due to a foreign rate differential and a valuation allowance against deferred tax assets as a result of the Company's history of losses.

The principal components of the Company's net deferred tax assets are as follows (in thousands)

	December 31, 2016			December 31, 2015
Net operating loss carryforwards	$	9,339		$	4,671
Tax credit carryforwards		1,960			445
Capitalized tax assets		241			528
Accruals		230			108
Stock compensation		954			43
Other		67			71

Total deferred tax assets		12,791			5,866
Valuation allowance		(12,791	)		(5,866	)

Net deferred tax assets	$	—		$	—

The Company recorded a valuation allowance against its deferred tax assets at December 31, 2016 and 2015 because Company management believed that it was more likely than not that these assets would not be fully realized. The valuation allowance increased by approximately $ 7.0 million and $5.8 million for the years ended December 31, 2016 and 2015, respectively. Changes in the valuation allowance for deferred tax assets relate primarily to the increase in the Company's net operating loss carryforward.

As of December 31, 2016, the Company had unrecognized tax benefits ("UTBs") of approximately $0.6 million. All of the deferred tax assets associated with these UTBs are fully offset by a valuation allowance. The following table summarizes the activity related to UTBs:

	December 31, 2016		December 31, 2015		December 31, 2014
Unrecognized tax benefits beginning of the period	$	135	$	—	$	—
Increase related to the prior year		6		—		—
Increased related to the current year		463		135		—

Unrecognized tax benefits, end of the period	$	604	$	135	$	—

The Company follows the provisions of ASC 740, Accounting for Income Taxes, and the accounting guidance related to accounting for uncertainty in income taxes. The Company determines its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be sustained upon examination by the relevant income tax authorities. The Company will recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.