Income Taxes

Income tax expense (benefit) for the years ended December 31, 2013, 2012, and 2011 attributable to income (loss) from operations is presented below.



	Current			Deferred			Total
Year ended December 31, 2013
Federal	$	1,793		$	(497	)	$	1,296
State	242			(52		)	190
Foreign	901			(237		)	664
	$	2,936		$	(786	)	$	2,150
Year ended December 31, 2012
Federal	$	715		$	2,036		$	2,751
State	146			254			400
Foreign	249			(137		)	112
	$	1,110		$	2,153		$	3,263
Year ended December 31, 2011
Federal	$	(16	)	$	120		$	104
State	179			(955		)	(776		)
Foreign	212			(24		)	188
	$	375		$	(859	)	$	(484	)

The actual income tax expense (benefit) differs from the “expected” income tax expense (benefit) computed by applying the United States Federal corporate income tax rate of 35% to income before tax expense (benefit) as follows:



	Year Ended December 31,
	2013			2012			2011
Computed “expected” tax expense	$	2,339		$	2,395		$	131
Decrease in income taxes resulting from:
State income tax expense, net of federal benefit	336			674			83
State research and development, investment credits	(309		)	(301		)	(1,006		)
Non-deductible expenses	255			117			101
Foreign tax rate differential	(208		)	(27		)	(42		)
Federal research and development credits	(746		)	—			(351		)
Adjustments to operating loss carry-forwards and other deferred taxes, net	(8		)	(33		)	(44		)
Stock-based compensation	—			(30		)	306
Change in valuation allowance	491			468			338
Net income tax expense (benefit)	$	2,150		$	3,263		$	(484	)

The components of results of income before income tax expense (benefit) determined by tax jurisdiction, are as follows:



	Year Ended December 31,
	2013			2012			2011
United States	$	5,500		$	7,917		$	971
UK	(343		)	—			—
Denmark	1,487			(295		)	(161		)
Cyprus	686			—			—
Norway	392			570			727
Brazil	(1,167		)	(1,375		)	(1,210		)
Singapore	48			25			49
Belgium	44			—			—
Japan	32			1			—
Netherlands	4			—			—
Total	$	6,683		$	6,843		$	376

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities as of the dates presented are as follows:



	December 31,
	2013			2012
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts	$	641		$	313
Inventories	436			289
Operating loss carry-forwards	1,392			1,011
Stock-based compensation expense	1,515			1,194
Intangible assets due to differences in amortization	—			74
Research and development, alternative minimum tax credit carry-forwards	2,600			3,507
Foreign tax credit carry-forwards	1,442			1,111
State tax credit carry-forwards	2,094			2,228
Accrued expenses	722			688
Gross deferred tax assets	10,842			10,415
Less valuation allowance	(2,700		)	(2,136		)
Total deferred tax assets	8,142			8,279
Deferred tax liabilities:
Purchased intangible assets	(3,129		)	(433		)
Property and equipment, due to differences in depreciation	(2,548		)	(3,176		)
Other	(30		)	—
Total deferred tax liabilities	(5,707		)	(3,609		)
Net deferred tax assets	$	2,435		$	4,670
Net deferred tax asset—current	$	3,060		$	1,146
Net deferred tax asset—noncurrent	$	—		$	3,524
Net deferred tax liability—noncurrent	$	(625	)	$	—

As of December 31, 2013, the Company had foreign net operating loss carry-forwards available to offset future foreign income of $4,032. The foreign net operating loss carry-forwards have no expiration.

As of December 31, 2013, the Company had federal research and development tax credit carry-forwards in the amount of $2,654 that expire in years 2021 through 2031, and foreign tax credit carry-forwards in the amount of $1,479 that expire in years 2015 through 2021. The Company also had alternative minimum tax credits of $132 that have no expiration date. As of December 31, 2013, the Company had state research and development tax credit carry-forwards in the amount of $3,143 that expire in years 2014 through 2018. The Company also had other state tax credit carry-forwards of $373 available to reduce future state tax expense that expire in years 2014 through 2018. The tax benefit related to $1,651 of federal and state tax credits would occur upon utilization of these deferred tax assets to reduce taxes payable and would result in a credit to additional paid-in capital within stockholders’ equity rather than the provision for income taxes.

The Company’s ability to utilize these net operating loss carry-forwards and tax credit carry-forwards may be limited in the future if the Company experiences an ownership change pursuant to Internal Revenue Code Section 382. An ownership change occurs when the ownership percentages of 5% or greater stockholders change by more than 50% over a three-year period.

For the years ended December 31, 2013, 2012, and 2011, the Company generated income before income taxes of $6,683, $6,843 and $376, respectively. In assessing the realizability of its net deferred tax assets, the Company considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those temporary differences become deductible. As of December 31, 2013, based upon an evaluation of the positive and negative evidence, the Company concluded that an increase of $564 of the deferred tax asset valuation allowance was appropriate, resulting in a valuation allowance of $2,700 as of December 31, 2013. As part of the Company’s analysis, the Company evaluated, among other factors, its recent history of generating taxable income and its near-term forecasts of future taxable income and determined that it is more likely than not that it will not be able to realize an additional $564 of the Company’s deferred tax assets over the next several years. After considering these factors, the Company concluded that an increase of the valuation allowance was required. The net increase in valuation allowance of $564 is composed of an increase of $397 in net operating losses that the Company does not expect to realize, a decrease of $104 related to the expiration of previously reserved state tax credit carry-forwards and an increase of $177 related to the use of net operating loss and credit carryforwards attributed to tax deductions in excess of recognized compensation expense from employee stock compensation awards that existed as of the adoption of ASC 718, Stock compensation. Total expense from the change in valuation allowance is $491. At December 31, 2013, the Company has recorded valuation allowances of approximately $1,473 against certain state tax credits and foreign net operating loss carryforwards, and intends to maintain the valuation allowance until sufficient evidence exists to support the reversal of the valuation allowance.

In addition, the Company continues to maintain a $1,228 valuation allowance against net operating losses and credits carryforwards attributed to tax deductions in excess of recognized compensation cost from employee stock compensation awards that existed as of the adoption of ASC 718. The Company will recognize the net deferred tax asset and corresponding benefit to additional paid-in capital for these windfall tax benefits once such amounts reduce income taxes payable, in accordance with the requirements of ASC 718.

The Company's income taxes currently payable for federal and state purposes have been reduced by the benefit of the tax deduction in excess of recognized compensation cost from employee stock compensation transactions in the amount of $693 which has been recorded as an increase to additional paid-in capital for the year ended December 31, 2013.

As of December 31, 2013, the Company has not provided for U.S. deferred income taxes on undistributed earnings of its foreign subsidiaries of approximately $2,050 since these earnings are expected to be indefinitely reinvested. Upon distribution of those earnings in the form of dividends or otherwise, the Company will be subject to additional U.S. and state income taxes (less foreign tax credits), as well as withholding taxes in its foreign locations. The amount of taxes attributable to the undistributed earnings is not practicably determinable.

On January 2, 2013, the President signed into law The American Taxpayer Relief Act of 2012. Under the prior law, a taxpayer was entitled to a research tax credit for qualifying amounts paid or incurred on or before December 31, 2011. The 2012 American Taxpayer Relief Act extends the research credit for two years to December 31, 2013. The extension of the research credit is retroactive and includes amounts paid or incurred after December 31, 2011. As a result of the retroactive extension, the Company is recognizing a benefit of approximately $363 for qualifying amounts incurred in 2012.

The Company establishes reserves for uncertain tax positions based on management’s assessment of exposure associated with tax deductions, permanent tax differences and tax credits. The tax reserves are analyzed periodically and adjustments are made as events occur to warrant adjustment to the reserve.

The Company did not have any material unrecognized tax benefits at December 31, 2013, 2012 or 2011. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company’s tax jurisdictions include the United States, the UK, Denmark, Cyprus, Norway, Brazil, Singapore, Belgium, Bermuda, the Netherlands, and Japan. In general, the statute of limitations with respect to the Company’s United States federal income taxes has expired for years prior to 2010, and the relevant state and foreign statutes vary. However, preceding years remain open to examination by United States federal and state and foreign taxing authorities to the extent of future utilization of net operating losses and research and development tax credits generated in each preceding year. The Company is no longer subject to income tax examinations by the Danish tax authorities for years prior to 2010.