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Income Taxes

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

12. Income Taxes

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

		Year ended December 31,
		2016				2015				2014
Domestic		$	6,332			$	13,295			$	9,615
Foreign			(2,454	)			(2,744	)			(1,386	)
Total		$	3,878			$	10,551			$	8,229

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

		Year ended December 31,
		2016				2015				2014
Current:
Federal		$	(593	)		$	(3,386	)		$	(2,750	)
State			63				(344	)			(173	)
Foreign			(37	)			—				(109	)
Total current			(567	)			(3,730	)			(3,032	)
Deferred:
Federal			(633	)			(220	)			379
State			(17	)			(10	)			27
Foreign			115				470				401
			(535	)			240				807
Change in valuation allowance			(332	)			(285	)			(408	)
Total deferred			(867	)			(45	)			399
(Provision) for income taxes		$	(1,434	)		$	(3,775	)		$	(2633	)

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

		Year ended December 31,
		2016				2015				2014
Tax (provision) at Federal statutory rate		$	(1,318	)		$	(3,587	)		$	(2,798	)
State income tax (provision), net of federal benefit			(148	)			(408	)			(257	)
Research and development tax credits			423				456				549
Foreign earnings or losses taxed at different rates			(292	)			(231	)			(102	)
Other			233				280				383
Change in valuation allowance			(332	)			(285	)			(408	)
Tax (provision)		$	(1,434	)		$	(3,775	)		$	(2,633	)

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

		2016				2015
Deferred revenue		$	845			$	1,019
Basis difference in intangible assets			(56	)			26
Inventory reserve			2,650				2,452
Net operating loss carryforwards			1,391				1,347
Research and development tax credits			88				—
Accrued expenses			92				165
Stock-based compensation			584				672
Allowance for sales returns and doubtful accounts			70				20
Difference in property and equipment basis			(350	)			(423	)
Other			743				886
Total net deferred income tax asset			6,057				6,164
Less: Valuation allowance			(1,403	)			(1,071	)
Net deferred income tax asset (liability)		$	4,654			$	5,093

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, 2016 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, foreign intangible assets, state R&D tax credit carryforwards, and capital loss carryforwards.

The Company has federal net operating loss (“NOL”) carryforwards of approximately $755 (pre-tax), Hong Kong NOL carryforwards of approximately $255, and Spain NOL carryforwards of approximately $855. 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, 2016 and 2015, that would favorably impact our effective tax rate if recognized was $233 and $176, respectively. As of December 31, 2016 and 2015, we accrued $87 and $55, 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,
		2016				2015
Balance - beginning of year		$	1,126			$	1,678
Additions based on tax positions related to the current year			16				52
Additions for tax positions of prior years			47				5
Reductions for tax positions of prior years			-				(503	)
Settlements			-				—
Lapse in statutes of limitations			-				(106	)
Uncertain tax positions, ending balance		$	1,189			$	1,126

The Company’s U.S. federal income tax returns for 2012 through 2015 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, which was completed subsequent to December 31, 2016. As a result of the audit, there were no material changes to the Company’s 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.