7. Income Taxes

        The domestic and foreign components of net income (loss) before income tax expense consists of the following for the periods shown below (in thousands):

        The provision for income taxes consisted of the following components (in thousands):

        A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate follows:

        Deferred tax assets and (liabilities) are comprised of the following (in thousands):

        During the year ended December 31, 2012, the Company reversed the valuation allowance for deferred tax assets related to its subsidiary operating in the UK totaling $92,000. This subsidiary had a history of generating income and used its remaining net operating loss carryforwards in the year ended December 31, 2012.

        At December 31, 2012 and 2013, the Company had a full valuation allowance against the deferred tax assets of its domestic operations as it believes it is more likely than not that these benefits will not be realized. Significant judgment is required in making this assessment, and it is very difficult to predict when, if ever, the assessment may conclude that the remaining portion of the deferred tax assets are realizable. The net valuation allowance increased by approximately $0.7 million and decreased by approximately $1.6 million during the years ended December 31, 2012 and 2013, respectively.

        Net operating loss and tax credit carryforwards as of December 31, 2013 are as follows (in thousands):

        Approximately $2.7 million of the net operating losses reported above represents unrecorded tax benefits for stock-based compensation, which will be recorded in additional paid in capital when realized. Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended (the "IRC"), and similar state provisions. The Company has not performed a detailed analysis to determine whether an ownership change under Section 382 of the IRC has occurred or will occur. The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss carryforwards attributable to periods before the change.

        The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits, excluding interest and penalties (in thousands):

        The Company does not believe there will be any material changes in its unrecognized tax benefits over the next 12 months. As of December 31, 2013, the amount of unrecognized tax benefits that would, if recognized, impact the Company's effective income tax rate is approximately $2.9 million.

        The Company files income tax returns in the United States, including various state and local jurisdictions. The Company's subsidiaries file income tax returns in the United Kingdom, Hong Kong, China and India. The Company is subject to examination in the United States, the United Kingdom, Hong Kong, China, and India as well as various state jurisdictions. As of December 31, 2013, the Company was not under examination by any tax authorities. Tax years beginning in 2008 are subject to examination by taxing United States tax authorities, although net operating loss and credit carryforwards from all years are subject to examinations and adjustments for at least three years following the year in which the attributes are used. Tax years beginning in 2009 are subject to examination by the taxing authorities in the United Kingdom.

        At December 31, 2013, the Company had undistributed foreign earnings of $0.8 million, which the Company intends to permanently reinvest in the foreign subsidiary. Unrecognized deferred tax liabilities of $0.3 million from temporary differences related to the investment in this foreign subsidiary would have been taxable if the Company repatriated the foreign earnings. The Company anticipates that future overseas earnings will also be reinvested indefinitely. In accordance with the indefinite reversal criteria, the foreign currency gains recorded in other comprehensive income related to foreign currency translation have not been tax effected.