9. DOMESTIC AND FOREIGN INCOME TAXES

Domestic and foreign income taxes (benefits) were comprised as follows:


	Year Ended December 31
		2013		2012		2011
Current
Federal	$	-	$	-	$	-
State		28		9		(33)
Foreign		189		162		42
	$	217	$	171	$	9
Deferred
Federal		-		-		-
State		-		-		-
Foreign		-		(7)		(169)
Income Tax Expense (benefit)	$	217	$	164	$	(160)
Income (loss) from continuing operations before income taxes and discontinued operations
Foreign		(139)		1,023		(636)
Domestic		(1,934)		900		194
	$	(2,073)	$	1,923	$	(442)

The following is a reconciliation of the statutory federal income tax rate to the effective tax rate based on income (loss) from continuing operations:


	Year Ended December 31
		2013		2012		2011
Tax provision at statutory rate		(34.00)	%	34.00	%	(34.00)	%
Change in valuation allowance		(5.12)		(34.20)		49.67
Impact of permanent items, including stock based compensation expense		24.15		6.08		22.66
Effect of foreign tax rates		6.35		(6.35)		18.68
State taxes net of federal benefit		(1.43)		0.78		(2.12)
Effect of dividend of foreign subsidiary in prior year		17.16		-		-
Prior year provision to return true-up		(5.10)		9.59		(82.91)
Other		8.45		(1.37)		(8.16)
Domestic and foreign income tax rate		10.46	%	8.53	%	(36.18)	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2013, and 2012 are presented below:


	Year Ended December 31
		2013		2012
Deferred tax assets:
Net operating loss carry forwards and credits - United States	$	8,053	$	7,135
Depreciation and amortization		114		-
Inventory related timing differences		552		426
Compensation accruals		1,148		972
Accruals and reserves		120		126
Credits		225		$ -
Other		186		94
Total Deferred tax assets		10,398		8,753
Less: valuation allowance		(10,046)		(8,746)
Deferred tax assets net of valuation allowance	$	352	$	7

Deferred tax liabilities
Undistributed Earnings of Foreign Subsidiary	$	(352)	$	-
Total deferred tax liabilities		(352)		-
Net deferred tax	$	-	$	7

The valuation allowance is maintained against deferred tax assets which the Company has determined are more likely than not unable to be realized. The change in valuation allowance was $(637), $(264) and $649 for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, the Company has net operating loss carryforwards for Federal tax purposes of approximately $22,997. Subsequently recognized tax benefits, if any, related to the valuation allowance for deferred tax assets or realization of net operating loss carryforwards will be reported in the consolidated statements of operations. If substantial changes in the Company’s ownership occur, there could be an annual limitation on the amount of the carryforwards that are available to be utilized.

Excluded from the Company’s net operating loss carryforwards is $93 in tax deductions resulting from the exercise of non-qualified stock options. Because the Company is currently in an NOL position, the $93 windfall is not recorded through additional paid-in capital until the tax benefit is recognized through a reduction in actual tax payments. For tax reporting purposes, the Company has actual federal and state net operating loss carryforwards of $22,997 and $6,978, respectively, as of December 31, 2013. These net operating loss carryforwards begin to expire in 2022 for federal tax purposes and 2017 for state tax purposes.

During 2013, the Company changed its indefinite reinvestment assertion and recognized a deferred tax liability relating to cumulative undistributed earnings of its controlled foreign subsidiary in Germany. The Company has not recognized a deferred tax liability relating to cumulative undistributed earnings of controlled foreign subsidiaries in Singapore and Indonesia that are essentially permanent in duration. If some or all of the undistributed earnings of the controlled foreign subsidiaries are remitted to the Company in the future, income taxes, if any, after the application of foreign tax credits will be provided at that time. Determination of the amount of unrecognized tax liability related to undistributed earnings in foreign subsidiaries is not currently practical.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company regularly assesses the likelihood that the deferred tax assets will be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred taxes to an amount that is more likely than not unable to be realized. Based upon the Company’s assessment of all available evidence, including the previous three years of United States based taxable income and loss after permanent items, estimates of future profitability, and the Company’s overall prospects of future business, the Company determined that it is more likely than not that the Company will not be able to realize a portion of the deferred tax assets in the future. The Company will continue to assess the potential realization of deferred tax assets on an annual basis, or an interim basis if circumstances warrant. If the Company’s actual results and updated projections vary significantly from the projections used as a basis for this determination, the Company may need to change the valuation allowance against the gross deferred tax assets.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. The Company had analyzed all tax positions for which the statute of limitations remains open. As a result of the assessment, the Company has not recorded any liabilities for unrecognized income tax benefits or retained earnings. The Company does not have any unrecognized tax benefits as of December 31, 2013, 2012 and 2011.

The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal and local, or non-U.S. income tax examinations by tax authorities for the years starting before 2009 and state for the years starting before 2008. There are no other on-going or pending IRS, state, or foreign examinations.

The Company recognizes penalties and interest accrued related to liabilities for uncertain tax positions in income tax expense for all periods presented. During the tax years December 31, 2013, 2012 and 2011 the Company has no amounts accrued for the payment of interest penalties.