TAXES AND NET OPERATING LOSS CARRYFORWARDS

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) bonus depreciation that will allow for full expensing of qualified property; (3) creating a new limitation on deductible interest expense; (4) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (5) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (6) limitations on the deductibility of certain executive compensation. The SEC issued guidance on accounting for the tax effects of the Tax Act. The Company must reflect the income tax effects of those aspects of the Tax Act for which the accounting is known. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements and the Tax Act provides a measurement period that should not extend beyond one year from the Tax Act enactment date. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the tax laws that were in effect immediately before the enactment of the Tax Act.

The corporate tax rate reduction was applied to our inventory of deferred tax liabilities, which resulted in the net tax benefit in the period ending December 31, 2017, of approximately $196,000.

Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes. The tax effects of these temporary differences representing the components of deferred tax assets (liabilities) were as follows:



(In thousands)	December 31, 2017			December 31, 2016
Deferred tax assets:
Loss and credit carry-forwards	$	7,722		$	9,169
Stock-based compensation	549			519
Inventory Reserve	494			534
Other	178			263
Total deferred tax assets	8,943			10,485
Valuation allowance	(8,756		)	(10,185		)
Total deferred tax assets, net of valuation allowance	187			300
Deferred tax liabilities:
State taxes (capital)	(17		)	(19		)
Property and equipment	(294		)	(459		)
Intangibles	(244		)	(386		)
Total deferred tax liabilities	(555		)	(864		)
Net deferred tax liabilities	$	(368	)	$	(564	)

We consider all positive and negative evidence regarding the realization of deferred tax assets, including past operating results and future sources of taxable income. U.S. net operating losses will begin to expire in years beginning in 2019.

We assess the financial statement impact of an uncertain tax position taken or expected to be taken on an income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained. All of our positions arise from taxable temporary differences and, as such, the liability has been recognized in the net deferred tax asset, current and non-current items to which they relate.

Below is a reconciliation of the statutory federal income tax rate to our effective tax rate:



	Year Ended December 31,
	2017		2016		2015
Federal tax provision	34.0	%	34.0	%	34.0	%
State taxes (net of federal benefit)	4.8	%	3.7	%	2.4	%
Warrant gains	0.4	%	31.4	%	(11.1	)%
Valuation allowance	28.9	%	(71.8	)%	(26.3	)%
Change in federal tax rate	(71.2	)%	—	%	—	%
Other	6.2	%	1.5	%	0.6	%
	3.1	%	(1.2	)%	(0.4	)%