Income Taxes

Income (loss) before income taxes for U.S and non-U.S operations was as follows:



	Year Ended December 31,
	2018			2017			2016
U.S. loss	$	(8,056	)	$	(17,066	)	$	(19,302	)
Non U.S. loss	(81		)	(220		)	(264		)
	$	(8,137	)	$	(17,286	)	$	(19,566	)

A reconciliation of income taxes computed using the federal statutory rate to the taxes reported in the consolidated statements of operations is as follows:



	Year Ended December 31,
(In thousands)	2018			2017			2016
Loss before income taxes	$	(8,137	)	$	(17,286	)	$	(19,566	)
Federal statutory rate	21		%	34		%	34		%
Taxes computed at federal statutory rate	(1,709		)	(5,877		)	(6,652		)
State taxes (net of federal benefit)	(385		)	(1,106		)	(1,016		)
Nondeductible stock compensation	(605		)	563			549
Federal and State Rate Change	839			11,749			(614		)
Other	172			116			56
Change in valuation allowance	1,688			(5,445		)	7,677
Reported income taxes	$	—		$	—		$	—

Deferred tax assets consist of the following:



	Year Ended December 31,
(In thousands)	2018			2017
Net operating loss carryforwards	$	10,969		$	10,487
Employee benefits and stock compensation	2,798			2,128
Research and development costs	9,067			8,275
Fixed assets	418			508
Inventory reserve	2,339			2,568
Other, net	345			282
Total deferred tax assets	25,936			24,248
Valuation allowance	(25,936		)	(24,248		)
Net deferred tax assets	$	—		$	—

As of December 31, 2018, the Company’s U.S. federal and state tax net operating loss carryforwards available to offset future profits, after considering the annual Section 382 limit described below, are $44.6 million and $25.2 million, respectively. These net operating loss carryforwards will expire between 2019 and 2038 with the exception of the federal net operating loss generated in 2018. The federal net operating loss of $1.3 million generated in 2018 can be carried forward indefinitely. The projected annual limitation on the use of the net operating losses that existed prior to September 17, 2014 as a result of our change in control in 2014 per Section 382 of the Internal Revenue Code is $0.8 million. As a result, a significant portion of the net operating losses and tax credit carryforwards will expire prior to their utilization, regardless of the level of future profitability.

In accordance with the accounting guidance for income taxes, the Company estimated whether recoverability of its deferred tax assets is “more likely than not,” based on forecasts of taxable income in the related tax jurisdictions. In this estimate, the Company uses historical results, projected future operating results based upon approved business plans, eligible carry forward periods, tax planning opportunities and other relevant considerations. Based on these factors, including historical losses incurred by the Company, a full valuation allowance for the deferred tax assets, including the deferred tax assets for the aforementioned net operating losses and credits, has been provided since they are not more likely than not to be realized. If the Company achieves profitability, these deferred tax assets may be available to offset future income taxes. The change in the valuation allowance was an increase of $1.7 million and a decrease of $5.4 million for the years ended December 31, 2018 and 2017, respectively.

The Company assesses uncertain tax positions in accordance with the guidance for accounting for uncertain tax positions. This pronouncement prescribes a recognition threshold and measurement methodology for recording within the financial statements uncertain tax positions taken, or expected to be taken, in the Company’s income tax returns. To the extent the uncertain tax positions do not meet the “more likely than not” threshold, the Company has derecognized such positions. To the extent the uncertain tax positions meet the “more likely than not” threshold, the Company has measured and recorded the highest probable benefit, and have established appropriate reserves for benefits that exceed the amount likely to be sustained upon examination. The Company currently has not recorded any uncertain tax positions and does not anticipate that the unrecognized tax benefits will significantly increase or decrease within the next twelve months.

The Company files U.S. federal and state income tax returns with varying statute of limitations. Due to the Company’s net operating loss carryforwards, federal income tax returns from incorporation are still subject to examination. Michigan tax returns for the year ended December 31, 2013 and forward are subject to examination. Massachusetts tax returns for the year ended December 31, 2015 and forward are subject to examination.

On December 22, 2017 the Tax Cuts and Jobs Act (Tax Act) was enacted. The Tax Act contains significant changes to corporate taxation, including the reduction of the corporate tax rate from 35 percent to 21 percent, increased deductions for capital spending, limitations on interest expense deductions, implementation of a territorial tax system, and imposition of a tax on deemed repatriated earnings of foreign subsidiaries. The Company remeasured the deferred taxes based on the enacted rate of 21 percent which resulted in an increase to tax expense of $11.7 million, which was recorded in 2017. The increase to tax expense was offset by the reversal of the valuation allowance. Our final determination of the Tax Act impact and the remeasurement of our deferred assets and liabilities was completed prior to the deadline of one year from enactment of the Tax Act. For the year ended December 31, 2018, there were no material changes to our analysis originally performed as of December 31, 2017.