12.

Income Taxes

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

	Year ended December 31,
	2017			2016			2015
Domestic	$	(12,630	)	$	6,332		$	13,295
Foreign		(3,263	)		(2,454	)		(2,744	)
Total	$	(15,893	)	$	3,878		$	10,551

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

	Year ended December 31,
	2017			2016			201 5
Current:
Federal	$	577		$	(593	)	$	(3,386	)
State		(66	)		63			(344	)
Foreign		(682	)		(37	)		-
Total current		(171	)		(567	)		(3,730	)
Deferred:
Federal		1,497			(633	)		(220	)
State		480			(17	)		(10	)
Foreign		748			115			470
Total		2,725			(535	)		240
Change in valuation allowance		(833	)		(332	)		(285	)
Total deferred		1,892			(867	)		(45	)
Benefit/(provision) for income taxes	$	1,721		$	(1,434	)	$	(3,775	)

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

	Year ended December 31,
	2017			2016			2015
Tax benefit (provision) at federal statutory rate	$	5,403		$	(1,318	)	$	(3,587	)
State income tax benefit (provision), net of federal benefit		439			(148	)		(408	)
Research and development tax credits		411			423			456
Subpart F inclusion		(370	)		-			-
Foreign earnings or losses taxed at different rates		(540	)		(292	)		(231	)
Tax rate change		(3,161	)		-			-
Other		372			233			280
Change in valuation allowance		(833	)		(332	)		(285	)
Tax benefit (provision)	$	1,721		$	(1,434	)	$	(3,775	)

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

	2017			2016
Deferred revenue	$	738		$	845
Basis difference in intangible assets		3,403			(56	)
Inventory reserve		2,089			2,650
Net operating loss carryforwards		1,627			1,391
Research and development tax credits		163			88
Accrued expenses		75			92
Stock-based compensation		327			584
Allowance for sales returns and doubtful accounts		119			70
Difference in property and equipment basis		(212	)		(350	)
Other		438			743
Total net deferred income tax asset		8,767			6,057
Less: Valuation allowance		(2,236	)		(1,403	)
Net deferred income tax asset (liability)	$	6,531		$	4,654

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, 2017

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

$692

(pre-tax), and Spain NOL carryforwards of approximately

$5,805.

The federal NOL carryforwards will begin to expire in

2029.

The Spain NOL carryforward does

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

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, 2017

and

2016,

that would favorably impact our effective tax rate if recognized was

$647

and

$588,

respectively. As of

December 31, 2017

and

2016,

we accrued

$14

and

$87,

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

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,
	2017			2016
Balance - beginning of year	$	1,189		$	1,126
Additions based on tax positions related to the current year		67			16
Additions for tax positions of prior years		520			47
Reductions for tax positions of prior years		-			-
Settlements		(165	)		-
Lapse in statutes of limitations		(959	)		-
Uncertain tax positions, ending balance	$	652		$	1,189

The Company’s U.S. federal income tax returns for

2014

through

2017

are subject to examination. The Company also files in various state and foreign jurisdictions. With few exceptions, the Company is

longer subject to federal, state, or non-U.S. income tax examinations by tax authorities for years prior to

2014.

The Company completed its audit by the Internal Revenue Service (“IRS”) for its

2012

and

2013

tax returns in

2017.

As a result of the audit by the IRS, there were

material adjustments made to the Company’s tax return.

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, 2017.

As a result of the audit, there were

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.