Income Taxes

Consolidated income before taxes for domestic and foreign operations consisted of the following:



	Year ended December 31,
	2015			2014
Domestic	$	13,295		$	9,615
Foreign	(2,744		)	(1,386		)
Total	$	10,551		$	8,229

The Company's (provision) for income taxes consisted of the following:



	Year ended December 31,
	2015			2014
Current:
Federal	$	(3,386	)	$	(2,750	)
State	(344		)	(173		)
Foreign	—			(109		)
Total current	(3,730		)	(3,032		)
Deferred:
Federal	(220		)	379
State	(10		)	27
Foreign	470			401
	240			807
Change in valuation allowance	(285		)	(408		)
Total deferred	(45		)	399
(Provision) for income taxes	$	(3,775	)	$	(2,633	)

The income tax (provision) differs from that computed at the federal statutory corporate income tax rate as follows:



	Year ended December 31,
	2015			2014
Tax (provision) at Federal statutory rate	$	(3,587	)	$	(2,798	)
State income tax (provision), net of federal benefit	(408		)	(257		)
Research and development tax credits	456			549
Foreign earnings or losses taxed at different rates	(231		)	(102		)
Other	280			383
Change in valuation allowance	(285		)	(408		)
Tax (provision)	$	(3,775	)	$	(2,633	)

The tax effects of significant temporary differences representing net deferred tax assets and liabilities consisted of the following:



	2015			2014
Deferred revenue	$	1,019		$	1,120
Basis difference in intangible assets	26			42
Inventory reserve	2,452			2,213
Net operating loss carryforwards	1,347			957
Research and development tax credits	—			60
Accrued expenses	165			292
Stock-based compensation	672			577
Allowance for sales returns and doubtful accounts	20			22
Difference in property and equipment basis	(423		)	(318		)
Other	886			910
Total net deferred income tax asset	6,164			5,875
Less: Valuation allowance	(1,071		)	(786		)
Net deferred income tax asset (liability)	$	5,093		$	5,089

The Company has not provided for U.S. deferred income taxes or foreign withholding taxes on undistributed earnings of its non-U.S. subsidiaries since these earnings are intended to be reinvested indefinitely, in accordance with guidelines contained in ASC Topic 740, Accounting for Income Taxes. It is not practical to estimate the amount of additional taxes that might be payable on such undistributed earnings.

In accordance with ASC Topic 740, the Company analyzed its valuation allowance at December 31, 2015 and determined that, based upon available evidence, it is more likely than not that certain of its deferred tax assets may not be realized and, as such, has established a valuation allowance against certain deferred tax assets. These deferred tax assets include foreign net operating loss carryforwards and foreign intangible assets.

The Company has federal net operating loss (“NOL”) carryforwards of approximately $818 (pre-tax), Hong Kong NOL carryforwards of approximately $1,577, and Spain NOL carryforwards of approximately $2,434. The federal NOL carryforwards will begin to expire in 2029. The Hong Kong and Spain NOL carryforwards do not expire.

Effective July 1, 2007, the Company adopted the accounting standards related to uncertain tax positions. This standard requires that tax positions be assessed using a two-step process. A tax position is recognized if it meets a "more likely than not" threshold, and is measured at the largest amount of benefit that is greater than 50 percent likely of being realized. Uncertain tax positions must be reviewed at each balance sheet date. Liabilities recorded as a result of this analysis must generally be recorded separately from any current or deferred income tax accounts.

The total amount of unrecognized tax benefits at December 31, 2015 and 2014, that would favorably impact our effective tax rate if recognized was $176 and $723, respectively. As of December 31, 2015 and 2014, we accrued $55 and $40, respectively, in interest and penalties related to unrecognized tax benefits. We account for interest expense and penalties for unrecognized tax benefits as part of our income tax provision.

Although we believe our estimates are reasonable, we can make no assurance that the final tax outcome of these matters will not be different from that which we have reflected in our historical income tax provisions and accruals. Such difference could have a material impact on our income tax provision and operating results in the period in which we make such determination.

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions is as follows:



	Year ended December 31,
	2015			2014
Balance - beginning of year	$	1,678		$	1,901
Additions based on tax positions related to the current year	52			564
Additions for tax positions of prior years	5			—
Reductions for tax positions of prior years	(503		)	(468		)
Settlements	—			(40		)
Lapse in statutes of limitations	(106		)	(279		)
Uncertain tax positions, ending balance	$	1,126		$	1,678

The Company’s U.S. federal income tax returns for 2012 through 2014 are subject to examination. The Company also files in various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state, or non-U.S. income tax examinations by tax authorities for years prior to 2012. The Company completed its audit by the Internal Revenue Service (“IRS”) for its 2006 tax return in 2010. As a result of the audit by the IRS, there were no material adjustments made to the Company’s tax return. The IRS commenced an examination of the Company's 2012 tax return. We do not anticipate the examination will result in a material change to its financial position.

The Inland Revenue Department of Hong Kong, a Special Administrative Region (the “IRD”), commenced an examination of the Company's Hong Kong profits tax returns for 2009 through 2011 in the fourth quarter of 2012 that is anticipated to be completed in 2016. The Company does not anticipate the examination will result in a material change to its financial position. During the next twelve months, it is reasonably possible that the amount of the Company's unrecognized income tax benefits could change significantly. These changes could be the result of our ongoing tax audits or the settlement of outstanding audit issues. However, due to the issues being examined, at the current time, an estimate of the range of reasonably possible outcomes cannot be made, beyond amounts currently accrued.