11. Income Taxes

For the years ended December 31, 2017, 2016 and 2015, the Company recorded no provision for income taxes primarily due to losses incurred. The Company has incurred net operating losses for all the periods presented. The Company has not reflected any benefit of the net operating loss carryforwards in the accompanying financial statements. The Company has established a full valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets.

The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:


	Year Ended December 31,
	2017		2016		2015
Tax at statutory federal rate	(34.0)	%	(34.0)	%	(34.0)	%
State taxes, net of federal benefit	(1.4)		(1.5)		(1.9)
Stock-based compensation	(0.8)		1.3		0.8
Nondeductible fair value adjustment	—		(2.5)		—
Nondeductible interest	—		2.0		—
Change in valuation allowance	(34.2)		33.3		34.3
Federal tax rate change	70.2		—		—
Other	0.2		1.4		0.8
Provision for income taxes	(0.0)	%	(0.0)	%	(0.0)	%

The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets are as follows (in thousands):


	December 31,
	2017		2016
Deferred tax assets:
Net operating loss carryforwards	$	22,586	$	29,469
Inventory		1,520		1,187
Accruals		401		902
Depreciation and amortization		60		105
Other		1,228		1,312
Gross deferred tax assets		25,795		32,975
Valuation allowance		(25,721)		(32,850)
Deferred tax assets		74		125
Deferred tax liabilities:
Prepaid expenses		(74)		(125)
Deferred tax liabilities		(74)		(125)
Net deferred tax assets	$	—	$	—

The Company is required to reduce its deferred tax assets by a valuation allowance if it is more likely than not that some or all of its deferred tax assets will not be realized. Management must use judgment in assessing the potential need for a valuation allowance, which requires an evaluation of both negative and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. In determining the need for and amount of the valuation allowance, if any, the Company assesses the likelihood that it will be able to recover its deferred tax assets using historical levels of income, estimates of future income and tax planning strategies. As a result of historical cumulative losses, the Company determined that, based on all available evidence, there was substantial uncertainty as to whether it will recover recorded net deferred taxes in future periods. Accordingly, the Company recorded a valuation allowance against all of its net deferred tax assets as of December 31, 2017 and 2016. The net valuation allowance decreased by $7.1 million in 2017 and increased $5.3 million in 2016.

As of December 31, 2017, the Company had federal net operating loss carryforwards of approximately $100.1 million which will begin to expire in the year of 2028 if not utilized. In addition, the Company had state net operating loss carryforwards of approximately $39.3 million, which will begin to expire in 2023 if not utilized.

The Tax Reform Act of 1986 (the Act) provides for a limitation on the annual use of net operating loss and research and development tax credit carryforwards following certain ownership changes (as defined by the Act) that could limit the Company’s ability to utilize these carryforwards.

The Company files income tax returns in the U.S. federal and various state jurisdictions. The Company is subject to U.S. federal and state income tax examinations by authorities for all tax years due to the accumulated net operating losses that are being carried forward for tax purposes.

The Company has not identified any unrecognized tax benefits as of December 31, 2017 and 2016. As the Company has a full valuation allowance on its deferred tax assets, any unrecognized tax benefits would reduce 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.

On December 22, 2017, President Trump signed into law the 2017 Tax Act, which significantly amends the Internal Revenue Code of 1986. The 2017 Tax Act, among other things, reduces the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limits the tax deduction for interest expense to 30% of adjusted earnings, eliminates net operating loss carrybacks, imposes a one-time tax on offshore earnings at reduced rates regardless of whether they are repatriated, allows immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifies or repeals many business deductions and credits. The rate reduction will take effect on January 1, 2018. The Company reviewed and incorporated the impact of the 2017 Tax Act in its tax calculations and disclosures. The primary impact on the Company stems from the re-measurement of its deferred taxes at the new corporate tax rate of 21%, which reduced the Company's net deferred tax assets, before valuation allowance, by $14.8 million. Due to the full valuation allowance, the change in deferred taxes was fully offset by the change in valuation allowance. The net effect of the tax reform enactment on the financial statements is $0 as of December 31, 2017. The Company continues to examine the impact these changes may have on the business.