(10) Income Taxes

The Company has incurred losses since inception. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which differences are expected to reverse.

Significant components of the Company’s deferred tax assets for federal income taxes as of December 31, 2019 and 2018 consisted of the following (in thousands):


	December 31,
	2019		2018
Deferred tax assets
Net operating loss carryforwards	$	32,704	$	26,993
Research and development credits		853		701
Depreciation and amortization		578		825
Accrued LifeCell settlement		—		252
Accrued expenses and other		259		191
Inventory reserve		417		425
Gross deferred tax asset		34,811		29,387
Valuation allowance		(34,811)		(29,387)
Net deferred tax asset	$	—	$	—

The Company does not have unrecognized tax benefits as of December 31, 2019 and 2018. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

The Company’s net operating loss (“NOL”) carryforwards for federal and state income tax purposes consisted of the following (in thousands):

The NOL carryforwards begin expiring in 2032 for federal purposes and in 2026 for state income tax purposes. The Company recorded a valuation allowance on the deferred tax assets as of December 31, 2019 and 2018 because of the uncertainty of their realization. The valuation allowance increased by $5.4 million for the year ended December 31, 2019 mainly due to losses incurred and by $5.5 million for the years ended December 31, 2018, mainly due to losses incurred and the reduction in the tax rate.

In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate income tax rate from 34% to 21% for tax years beginning after December 31, 2017. The Tax Act also provided for a onetime transition tax on certain foreign earnings and the acceleration of depreciation for certain assets placed into service after September 27, 2017 as well as prospective changes beginning in 2018, including repeal of the domestic manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and development expenditures, additional limitations on executive compensation, and limitations on the deductibility of interest.

Utilization of the net operating losses and general business tax credits carryforwards may be subject to a substantial limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if changes in ownership of the company have occurred previously or occur in the future. Ownership changes may limit the amount of net operating losses and general business tax credits carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of 5% shareholders in the stock of a corporation by more than 50 percentage points over a three‑year period. If the Company experiences a Section 382 ownership change, the tax benefits related to the NOL carryforwards may be further limited or lost. The Company has not performed an analysis under Section 382 and cannot predict or otherwise determine whether there would be any limitation to the amount of net operating losses and general business tax credits carryforwards that can be utilized.

A reconciliation of income tax benefit at the statutory federal income tax rate and as reflected in the consolidated financial statements is as follows:


	Year ended December 31,
	2019		2018		2017
Rate reconciliation
Federal tax benefit at statutory rate	(21.0)	%	(21.0)	%	(34.0)	%
State rate, net of federal benefit	(2.9)		(4.7)		(5.2)
Permanent differences	0.4		0.5		5.5
Change in federal rate	—		—		48.0
Research and development	(0.7)		(0.8)		—
Change in valuation allowance	24.2		26.3		(15.1)
Other	—		(0.3)		0.8
Total tax provision	—	%	—	%	—	%

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Tax years 2016 and forward remain open for examination for federal tax purposes and tax years 2016 and forward remain open for examination for the Company’s more significant state tax jurisdictions. To the extent utilized in future years’ tax returns net operating loss carryforwards at December 31, 2018 will remain subject to examination until the respective tax year is closed.

December 31,

NOL carryforwards