The Company is subject to U.S. federal income tax and files a consolidated federal income tax return which includes all eligible U.S. subsidiary companies. The Company is also subject to tax in the states of Alabama, Illinois, Montana, New Jersey and

Tennessee. The Company conducts significant operations in certain foreign countries and is, accordingly, subject to tax in those foreign jurisdictions consisting of Canada (including the province of Ontario), Estonia, Luxembourg and Jersey.

The Company’s current tax (benefit) expense was $(0.1) million, $(0.1) million and $0.3 million for the years ended December 31, 2018, 2017 and 2016, respectively. The (credit) provision for income taxes attributable to continuing operations before income taxes for the years ended December 31, 2018, 2017 and 2016 is as follows (in thousands):


	2018		2017		2016
Current tax expense (benefit):
Federal	$	—	$	(86)	$	26
State and local	30		20		35
Foreign	(157)		42		272
Total current tax (benefit) expense	(127)		(24)		333
Deferred tax expense:
Federal	—		—		—
State and local	—		—		—
Foreign	65		(61)		(46)
Total deferred tax expense (benefit)	65		(61)		(46)

Total income tax (benefit) expense	$	(62)	$	(85)	$	287


	2018		2017		2016
Expected Statutory expense (benefit)	$	(7,627)	$	(5,195)	$	(3,977)
U.S. TCJA recovery of alternative minimum tax credits	—		(73)		—
Change in the fair values of derivative and amortization of debt discount	—		2,939		2,584
Other non-deductible expenses	256		24		63
Change in valuation allowance including U.S. TCJA rate reduction	6,572		(2,012)		590
Reduction in deferred tax assets related to U.S. TCJA rate reduction	—		7,504		—
Change to Accounting for Equity Compensation Windfalls	—		(1,112)		—
Tax rate differential - foreign vs. U.S.	791		(2,276)		822
State income taxes, net of federal benefit	23		13		23
Shortfalls related to stock compensation expense	—		129		154
Prior year true-up	(93)		(13)		—
Exchange gain	16		(13)		28
	$	(62)	$	(85)	$	287

On December 22, 2017, the President signed into law the United States Tax Cuts and Jobs Act (U.S. TCJA) significantly revising the Internal Revenue Code of 1986, as amended. The U.S. TCJA includes, among other items, (1) a permanent reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%; (2) limitations on the tax deduction for net interest expense, (3) a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (4) a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system; (5) elimination of the Alternative Minimum Tax regulations; (6) recovery of Alternative Minimum Tax Credits over a five year period; and (7) modifying or repealing many other business deductions and credits.

The Company has assessed the impacts of the changes resulting from the U.S. TCJA and during the fourth quarter of 2017 recognized an income tax benefit and a corresponding receivable of $73 thousand related to the recoverability of Alternative Minimum Tax Credits. Also, during the fourth quarter of 2017, deferred tax assets, liabilities and valuation allowances were remeasured at the new rate of 21%. There was no income impact from the remeasurement since all U.S. net deferred tax assets are fully reserved by the Company.

In December 2017, the SEC provided regulatory guidance for accounting of the impacts of the TCJA, referred to as SAB 118. Under the guidance of SAB 118, the income tax effects, for which the accounting under ASC 740 is incomplete, are reported as a provisional amount based on a reasonable estimate. The reasonable estimate is subject to adjustment during a “measurement period”, not to exceed one year, until the accounting is complete. The estimate is also subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the TCJA, changes to certain estimates and profits of certain subsidiaries and the filing of tax returns.


	2018		2017
Deferred Tax Assets:
Sales allowances and doubtful accounts	$	1,964	$	506
Inventory reserve	962		619
Deferred revenue	590		—
Accrued expenses	23		664
Property, plant and equipment	258		214
Tax operating loss carryforwards	9,951		9,327
Tax credit and other carryforwards	1,299		168
Stock compensation	538		1,817
Total deferred tax assets	15,585		13,315
Less valuation allowance	(12,120)		(13,309)
Net deferred tax assets	3,465		6

Deferred Tax Liabilities:
Convertible debt conversion features	(3,514)		—
Foreign exchange	(28)		—
Intangible assets	(138)		(165)
Total deferred tax liabilities	(3,680)		(165)
Net deferred tax liability	$	(215)	$	(159)

The Company evaluates the recoverability of its deferred tax assets based on its history of operating results, its expectations for the future, and the expiration dates of the net operating loss carry forwards. Based on the preponderance of the evidence, the Company has concluded that it is more likely than not that it will be unable to realize the net deferred tax assets in the immediate future and has established a full valuation allowance for substantially all deferred tax assets. Accordingly, the Company has provided a valuation allowance of $12.1 million and $13.3 million for the years ended December 31, 2018 and 2017, respectively, on its deferred tax assets. The valuation allowance decreased $1.2 million during 2018. This decrease was


	2018		2017
Federal:
Net operating losses (see below)	$	45,081	$	41,688
Disallowed interest expense (no expiration)	5,018		—
Contributions (expiring through 2023)	524		210
Research tax credits (expiring through 2025)	135		168

State:
New Jersey (expiring in 2038)	2,976		4,320
Other states (expiring through 2038)	2,307		1072

Foreign
Net operating losses (no expiration)	$	257	$	255

The Company’s ability to use net operating loss carry forwards is subject to substantial limitation in future periods under certain provisions of Section 382 of the Internal Revenue Code of 1986, as amended, which limit the utilization of net operating losses upon a more than 50% change in ownership of the Company’s stock that is held by 5% or greater stockholders. The Company examined the application of Section 382 with respect to an ownership change that took place during 2010, as well as the limitation on the application of net operating loss carry forwards. The Company believes that operating losses subsequent to the change date in 2010 (aggregating $26.5 million) are not subject to Section 382 limitations. The Company has estimated that the annual limitation starting in 2010 aggregates from $1.0 million to $2.3 million per year including the effect of amortization of built in gains. The Company's loss carryforwards may be further limited in the future if additional ownership changes occur.

The Company is subject to the provisions of ASC 740-10-25, Income Taxes (ASC 740). ASC 740 prescribes a more likely-than-not threshold for the financial statement recognition of uncertain tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. On a quarterly basis, the Company undergoes a process to evaluate whether income tax accruals are in accordance with ASC 740 guidance on uncertain tax positions.

Federal income tax returns for the years 2014 and 2015 have been examined by the U.S. Internal Revenue Service without any income tax expense consequences. For federal purposes (except for the years 2014 and 2015), post 1998 tax years remain open to examination as a result of net operating loss carryforwards. The Company is currently open to audit by the appropriate state income taxing authorities for tax years 2014 through 2017. The Company has not recorded any liability for uncertain tax positions at December 31, 2018 or December 31, 2017.