Entity information:
Income Taxes
Income tax expense of $304 and $387 for the years ended December 31, 2017 and 2016, respectively is composed of foreign income taxes on earnings generated in the foreign subsidiaries.
Deferred income taxes reflect the net 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 taxes at December 31 are as follows:
 
 
2017
 
2016
Deferred tax assets:
 
 

 
 

Capitalized transaction costs
 
$
415

 
$
686

Intangible assets
 
2,418

 
2,794

Inventory valuation
 
506

 
1,371

Research and development credit
 
3,241

 
2,796

Foreign timing differences
 
(17
)
 
117

Unremitted foreign earnings
 
(438
)
 
100

Other
 
952

 
1,121

Net operating loss carryforwards
 
34,887

 
44,087

 
 
41,964

 
53,072

 
 
 
 
 
Deferred tax liabilities:
 
 
 
 
Depreciable assets
 
(47
)
 
(288
)
 
 
(47
)
 
(288
)
Total net deferred tax assets
 
41,917

 
52,784

Less valuation allowance
 
(41,917
)
 
(52,784
)
Net deferred tax assets (liabilities)
 
$
—

 
$
—


The Company has established a valuation allowance equal to the total net deferred tax asset due to uncertainties regarding the realization of deferred tax assets based on the Company's lack of earnings history and potential limitations pursuant to changes in ownership under Internal Revenue Code Section 382. The valuation allowance decreased by $10,867 during the year ended December 31, 2017, primarily as a result of changes in net operating loss and new tax legislation.
As of December 31, 2017, the Company has no unrecognized tax benefits or accrued interest or penalties associated with uncertain tax positions.
The Company's provision for income taxes differs from the expected tax expense amount computed by applying the statutory federal income tax rate of 34% to income before income taxes as a result of the following:
 
 
2017
 
2016
Tax at U.S. statutory rate of 34%
 
(9,176
)
 
$
(13,865
)
State taxes, net of deferred benefit
 
(866
)
 
(1,061
)
Foreign tax rate differential
 
(451
)
 
422

Foreign taxes
 
—

 
91

Permanent differences
 
726

 
3,942

Research and development tax credit
 
(444
)
 
(240
)
Other
 
1,045

 
204

Unremitted foreign earnings
 
(757
)
 
—

Valuation allowance - current year
 
9,332

 
—

Change in valuation allowance
 
(20,199
)
 
10,894

Federal tax rate change
 
21,094

 
—

Income tax expense
 
$
304

 
$
387


As of December 31, 2017, the Company had federal net operating loss carryforwards of approximately $146,693 which will expire in varying amounts beginning in 2025 if not utilized. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company's ownership may result in a limitation on the amount of net operating loss carryforwards which can be used in future years. The Company had state net operating loss carryforwards of approximately $66,987 which will begin to expire in varying amounts beginning in 2019. The Company had foreign net operating losses of approximately $4,422 which begin to expire in varying amounts beginning in 2020, if not utilized.
New Tax Legislation
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act ("Tax Act") which makes significant changes in the U.S. tax law including a reduction in the corporate tax rates from 35% to 21%. The lowering of the corporate tax rate reduced the Company's net U.S. deferred tax assets by $21,094. Because the Company previously established a valuation allowance equal to its total U.S. net deferred tax assets, the enactment of the new tax law also reduced its valuation allowance and had no net impact on earnings.
The legislation also introduced a new Global Intangible Low-Taxed Income (“GILTI”) provision. Because of the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision and the application of ASC 740, Income Taxes. The Company is allowed to make an accounting policy choice of either 1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period cost when incurred, or 2) factoring such amounts into the Company’s measurement of its deferred taxes. GILTI depends not only on the Company's current structure and estimated future income, but also its intent and ability to modify the structure or business. The Company has chosen to treat GILTI as a current-period cost when incurred.
On December 22, 2017, Staff Accounting Bulletin No. 118 was issued to address the implication of U.S. GAAP in situations when the Company does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act and provides a one-year measurement period to complete the accounting required under ASC 740. The Company has not completed its accounting for the income tax effects of the Tax Act. The Company will report amounts as needed in the first reporting period during the measurement period in which the Company obtains necessary information and is able to complete its analysis of each respective item impacted by the Tax Act.