Income Taxes

Income tax expense for the years ended December 31, 2019 and 2018 attributable to loss from operations is presented below.



	Current			Deferred			Total
Year ended December 31, 2019
Federal	$	(196	)	$	(4,741	)	$	(4,937	)
State	(28		)	(29		)	(57		)
Foreign	1,143			(152		)	991
	$	919		$	(4,922	)	$	(4,003	)
Year ended December 31, 2018
Federal	$	(3	)	$	(12	)	$	(15	)
State	(59		)	(4		)	(63		)
Foreign	596			(172		)	424
	$	534		$	(188	)	$	346

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 both 2019 and 2018 to loss before tax expense, as follows:



	Year Ended December 31,
	2019			2018
Income tax benefit at Federal statutory income tax rate	$	(4,203	)	$	(2,314	)
(Decrease) increase in income taxes resulting from:
State income tax (benefit) expense, net of federal benefit	(610		)	172
State research and development, investment credits	71			(397		)
Non-deductible meals & entertainment	36			26
Non-deductible stock compensation expense	18			6
GILTI	—			577
Nontaxable interest income	—			2
Foreign tax rate differential	(4		)	(22		)
Federal research and development credits	(490		)	(378		)
Uncertain tax positions	(110		)	53
Provision to tax return adjustments	21			513
Change in tax rates	—			(3		)
Change in valuation allowance	934			2,127
Foreign research and development incentives	—			(5		)
Loss on legal entity dissolution	244			—
Other	90			(11		)
Income tax (benefit) expense	$	(4,003	)	$	346

Loss from continuing operations before income tax (benefit) expense determined by tax jurisdiction, are as follows:



	Year Ended December 31,
	2019			2018
United States	$	(22,452	)	$	(12,828	)
Foreign	2,440			1,730
Total	$	(20,012	)	$	(11,098	)

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



	December 31,
	2019			2018
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts	$	373		$	577
Inventories	776			718
Operating loss carry-forwards	1,343			3,064
Stock-based compensation expense	807			762
Property and equipment, due to difference in depreciation	47			53
Research and development, alternative minimum tax credit carry-forwards	5,243			4,716
Foreign tax credit carry-forwards	2,345			2,360
State tax credit carry-forwards	3,146			2,977
Capitalized research and development	3,263			3,130
Warranty reserve	523			454
Accrued expenses	845			556
Right of use assets	1,378			—
Gross deferred tax assets	20,089			19,367
Less valuation allowance	(18,452		)	(18,144		)
Total deferred tax assets	1,637			1,223
Deferred tax liabilities:
Purchased intangible assets	(844		)	(951		)
Property and equipment, due to differences in depreciation	(132		)	(994		)
Lease liability	(1,378		)	—
Other	—			(18		)
Total deferred tax liabilities	(2,354		)	(1,963		)
Net deferred tax liability	$	(717	)	$	(740	)
Non-current deferred income tax asset	$	45		$	226
Non-current deferred income tax liability	$	(762	)	$	(966	)

As of December 31, 2019, the Company had federal research and development tax credit carry-forwards in the amount of $5,234 and other general business credits of $9 that expire in years 2026 through 2039. As of December 31, 2019, the Company had foreign tax credit carry-forwards in the amount of $2,345 that expire in years 2026 through 2027. As of December 31, 2019, the Company had state research and development tax credit carry-forwards in the amount of $3,844 that expire in years 2020 through 2026. The Company also had other state tax credit carry-forwards of $138 available to reduce future state tax expense that expire in years 2020 through 2026.

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. 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, 2019, the Company concluded that a net increase of $308 of the valuation allowance was appropriate. The change was the result of an increase in domestic tax credit and net operating loss balances offset by a decrease attributed to the derecognition of foreign net operating losses. 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, 2019, 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,
	2019			2018
Unrecognized tax benefits as of January 1	$	494		$	469
Gross increase in unrecognized tax benefits - prior year tax positions	1,524			—
Gross increase in unrecognized tax benefits - current year tax positions	78			75
Lapse of statute of limitations	(199		)	(50		)
Unrecognized tax benefits as of December 31	$	1,897		$	494

All unrecognized tax benefits as of December 31, 2019 and 2018, if recognized, would result in a reduction of the Company's effective tax rate.

The Company recorded interest and penalties of $11 and $16 in its consolidated statement of operations for the years ended December 31, 2019 and 2018, 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 $147 and $136 as of December 31, 2019 and 2018, 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, 2019 may decrease approximately $32 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, the Netherlands, 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 2016, 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 the $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 of $484 in order to adjust our 2017 estimate.