Income Taxes

Income tax expense for the years ended December 31, 2018, 2017, and 2016 attributable to loss from operations is presented below.



	Current			Deferred			Total
Year ended December 31, 2018
Federal	$	(3	)	$	(12	)	$	(15	)
State	(59		)	(4		)	(63		)
Foreign	1,408			(765		)	643
	$	1,346		$	(781	)	$	565
Year ended December 31, 2017
Federal	$	(41	)	$	6		$	(35	)
State	36			—			36
Foreign	1,857			(762		)	1,095
	$	1,852		$	(756	)	$	1,096
Year ended December 31, 2016
Federal	$	227		$	3,197		$	3,424
State	144			457			601
Foreign	2,770			(1,248		)	1,522
	$	3,141		$	2,406		$	5,547

Actual income tax expense differs from the “expected” income tax benefit computed by applying the United States Federal statutory income tax rate of 21% for 2018 and 35% for 2017 and 2016 to loss before tax expense, as follows:



	Year Ended December 31,
	2018			2017			2016
Income tax benefit at Federal statutory income tax rate	$	(1,611	)	$	(3,379	)	$	(670	)
Increase (decrease) in income taxes resulting from:
State income tax expense, net of federal benefit	172			56			(156		)
State research and development, investment credits	(397		)	(435		)	(363		)
Non-deductible meals & entertainment	28			47			49
Non-deductible stock compensation expense	21			338			216
Non-deductible deferred compensation expense	—			—			116
Subpart F income, net of foreign tax credits	—			1,171			523
GILTI	577			—			—
Foreign branch income	—			—			52
Nontaxable interest income	2			—			(162		)
Foreign tax rate differential	(93		)	(902		)	(1,258		)
Federal research and development credits	(378		)	(427		)	(395		)
Uncertain tax positions	(209		)	189			283
Provision to tax return adjustments	470			8			(95		)
Change in tax rates	(3		)	926			14
Change in valuation allowance	2,130			3,330			7,425
Foreign research and development incentives	(32		)	(22		)	(45		)
Other	(112		)	196			13
Income tax expense	$	565		$	1,096		$	5,547

Loss before income tax expense determined by tax jurisdiction, are as follows:



	Year Ended December 31,
	2018			2017			2016
United States	$	(12,828	)	$	(13,271	)	$	(7,775	)
Foreign	5,161			3,333			5,805
Total	$	(7,667	)	$	(9,938	)	$	(1,970	)

Deferred tax assets and liabilities for the periods presented consisted of the following:



	December 31,
	2018			2017
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts	$	582		$	540
Inventories	718			581
Operating loss carry-forwards	3,064			4,725
Stock-based compensation expense	762			696
Property and equipment, due to difference in depreciation	173			190
Research and development, alternative minimum tax credit carry-forwards	4,716			4,338
Foreign tax credit carry-forwards	2,360			2,958
State tax credit carry-forwards	2,977			2,958
Capitalized research and development	3,130			—
Warranty reserve	454			495
Accrued expenses	556			334
Gross deferred tax assets	19,492			17,815
Less valuation allowance	(18,144		)	(16,014		)
Total deferred tax assets	1,348			1,801
Deferred tax liabilities:
Purchased intangible assets	(1,810		)	(2,705		)
Property and equipment, due to differences in depreciation	(994		)	(1,681		)
Other	(18		)	(29		)
Total deferred tax liabilities	(2,822		)	(4,415		)
Net deferred tax liability	$	(1,474	)	$	(2,614	)
Net deferred tax asset- non-current	$	226		$	20
Net deferred tax liability- non-current	$	(1,700	)	$	(2,634	)

As of December 31, 2018, the Company had federal research and development tax credit carry-forwards in the amount of $4,707 and other general business credits of $9 that expire in years 2026 through 2038. As of December 31, 2018, the Company had foreign tax credit carry-forwards in the amount of $2,360 that expire in years 2026 through 2027. As of December 31, 2018, the Company had state research and development tax credit carry-forwards in the amount of $3,518 that expire in years 2019 through 2025. The Company also had other state tax credit carry-forwards of $251 available to reduce future state tax expense that expire in years 2019 through 2025.

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.

As of January 1, 2017, the Company adopted Update No. 2016-09. In accordance with Update No. 2016-09, previously unrecognized excess tax benefits are recognized on a modified retrospective basis. On January 1, 2017, the Company recorded a $1,117 deferred tax asset related to unrecognized excess tax benefits with an offsetting adjustment to retained earnings. As the Company had previously recorded a full valuation allowance on its U.S. deferred tax assets, a corresponding increase to the valuation allowance was recorded with an offsetting adjustment to retained earnings.

As of January 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers. The adoption of ASC 606 primarily resulted in a deferment of revenue as of December 31, 2017, which in turn generated additional deferred tax assets that ultimately increased the Company's net deferred tax asset position by $202 as of January 1, 2018 related to sales made by the Company in certain international jurisdictions.

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. As of December 31, 2018, the Company concluded that a net increase of $2,130 of the valuation allowance was appropriate. 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.

As of December 31, 2018, unremitted foreign earnings, which were not significant, have been retained by the Company's foreign subsidiaries for indefinite reinvestment. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company could be subject to state tax and withholding taxes payable to various foreign countries.

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 that warrant adjustment to the reserve. The Company's policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.

The aggregate changes in the total gross amount of unrecognized tax benefits are as follows:



	Year Ended December 31,
	2018			2017			2016
Unrecognized tax benefits as of January 1	$	1,006		$	815		$	983
Gross increase in unrecognized tax benefits - prior year tax positions	—			52			—
Gross increase (decrease) in unrecognized tax benefits due to currency fluctuations - prior year tax positions	(10		)	43			(131		)
Gross increase in unrecognized tax benefits - current year tax positions	75			111			293
Settlements with taxing authorities	(180		)	—			(330		)
Lapse of statute of limitations	(222		)	(15		)	—
Unrecognized tax benefits as of December 31	$	669		$	1,006		$	815

All unrecognized tax benefits as of December 31, 2018, 2017, and 2016, if recognized, would result in a reduction of the Company's effective tax rate.

The Company recorded interest and penalties of $80, $67, and $40 in its statement of operations for the years ended December 31, 2018, 2017, and 2016, respectively. Total accrued interest and penalties related to tax positions taken on our tax returns and included in non-current income taxes payable was approximately $447, $564, and $545 as of December 31, 2018, 2017, and 2016, respectively.

The timing of any resolution of income tax examinations is highly uncertain, as are the amounts and timing of any settlement payment. These events could cause fluctuations in the balance sheet classification of current and non-current assets and liabilities. The Company estimates that it is reasonably possible that the balance of unrecognized tax benefits as of December 31, 2018 may decrease approximately $359 in the next twelve months as a result of a lapse of statutes of limitation and settlements with taxing authorities.

The Company’s tax jurisdictions include the United States, the United Kingdom, Denmark, Cyprus, Norway, Brazil, Singapore, Belgium, Hong Kong, Japan, and India. In general, the statute of limitations with respect to the Company's United States federal income taxes has expired for years prior to 2014, 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.

Tax Reform

The 2017 Tax Cuts and Jobs Act (the 2017 Tax Act), which was signed into law on December 22, 2017, resulted in significant changes to the U.S. corporate income tax system. These changes included a federal statutory rate reduction from 35% to 21%, the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation. The 2017 Tax Act transitioned international taxation from a worldwide system to a modified territorial system and included base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation as global intangible low-taxed income (GILTI). The 2017 Tax Act included a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries' previously untaxed foreign earnings (the Transition Toll Tax). These changes were effective beginning in 2018.

Changes in tax rates and tax laws are accounted for in the period of enactment. Therefore, during the year ended December 31, 2018, the Company recorded a reduction in its deferred tax assets and corresponding valuation allowance of $484 related to the provisions of the 2017 Tax Act.

On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 118 to provide guidance to companies on how to implement the accounting and disclosure changes in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of H.R.1, also known as the 2017 Tax Act. During the year ended December 31, 2017, the Company recorded a reduction in our deferred tax assets and corresponding valuation allowance of $1,780 and a net tax benefit of $54 related to the Company's current estimate of the provisions of the 2017 Tax Act.

As of December 31, 2018, the Company has completed its assessment of the total impact of the 2017 Tax Act, which resulted in a total reduction in our deferred tax assets and corresponding valuation allowance of $2,264 and a net tax benefit of $54. Included in $2,264 reduction in our deferred tax assets and corresponding valuation allowance, is $1,209 related to the Transition Toll Tax

In 2018, due to the completion of this analysis we recorded a reduction in our deferred tax assets and corresponding valuation allowance $484 in order to adjust our 2017 estimate.