INCOME TAXES
 12 Months Ended
Dec. 31, 2014
INCOME TAXES [Abstract]  
INCOME TAXES
NOTE 8: INCOME TAXES

The components of the Company’s income before income taxes are attributable to the following jurisdictions for the years ended December 31 (in thousands):

  
2014
  
2013
 
United States
 
$
2,044
  
$
702
 
Foreign
  
7,777
   
2,107
 
  
$
9,821
  
$
2,809
 
 
The components of the Company’s income tax provision (benefit) for the years ended December 31 are as follows (in thousands):

Current provision:
 
2014
  
2013
 
Federal
 
$
2,433
  
$
124
 
State
  
43
   
144
 
Foreign
  
2,547
   
1,434
 
   
5,023
   
1,702
 
Deferred provision (benefit):
        
Federal
  
(1,792
)
  
(1,883
)
State
  
349
   
—
 
Foreign
  
(255
)
  
(184
)
   
(1,698
)
  
(2,067
)
  
$
3,325
  
$
(365
)

A reconciliation of the Company’s effective income tax rate and the United States federal statutory income tax rate is summarized as follows, for the years ended December 31:

  
2014
  
2013
 
Federal statutory income taxes
  
35.0
%
  
35.0
%
State income taxes, net of federal benefit
  
3.5
   
1.3
 
Difference in foreign and United States tax on foreign operations
  
(16.1
)
  
(11.6
)
Effect of changes in valuation allowance for net operating loss carryforwards
  
14.3
   
(55.9
)
Effect of change in uncertain tax positions (net)
  
0.5
   
(17.0
)
Federal Sub-Part F Income from foreign operations
  
2.9
   
11.8
 
Other
  
(6.2
)
  
23.4
 
   
33.9
%
  
(13.0
)%

For the years ended December 31, 2014 and 2013, the Company’s effective tax rate was 33.9% and (13.0)% respectively. For 2014, the effective tax rate was close to what would have been expected if the federal statutory rate was applied to income before taxes. Items increasing the effective income tax rate included the change in the valuation allowances associated with certain deferred tax assets, U.S. federal tax on deemed foreign dividend distribution, and “subpart F income” resulting from controlled foreign corporation operations. Items decreasing the effective income tax rate included the foreign tax credits. For 2013, the effective income tax rate was lower than what would be expected if the federal statutory income tax rate were applied to income before taxes primarily because of the tax benefit recognized from an IRS tax audit settlement, reversal of valuation allowances against net deferred tax assets and differences from foreign operations.
 
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities consisted of the following at December 31 (in thousands):

Deferred tax assets:
 
2014
  
2013
 
Current:
    
Deferred revenue
 
$
453
  
$
(26
)
Inventory capitalization
  
171
   
228
 
Inventory reserves
  
762
   
644
 
Accrued expenses
  
697
   
917
 
Other
  
127
   
108
 
Total current deferred tax assets
  
2,210
   
1,871
 
Noncurrent:
        
Depreciation and amortization
  
1,867
   
1,834
 
Net operating loss(1)
  
5,842
   
5,078
 
Deferred royalty
  
28
   
39
 
Non-cash accounting charges related to stock options and warrants
  
628
   
520
 
Accrued expenses
  
350
   
366
 
Foreign tax credit carryover
  
3,855
   
—
 
Other
  
506
   
843
 
Total noncurrent deferred tax assets
  
13,076
   
8,680
 
Total deferred tax assets
  
15,286
   
10,551
 
Valuation allowance
  
(9,745
)
  
(5,264
)
Total deferred tax assets, net of valuation allowance
 
$
5,541
  
$
5,287
 
Deferred tax liabilities:
        
Current:
        
Prepaid expenses
 
$
413
  
$
396
 
Deferred Commissions
  
769
   
5
 
Other
  
10
   
—
 
Total current deferred tax liabilities
  
1,192
   
401
 
Noncurrent:
        
Internally-developed software
  
11
   
15
 
Depreciation and amortization
  
2
   
2
 
Sub-Part F Income Deferred
  
—
   
2,163
 
Other
  
24
   
(52
)
Total noncurrent deferred tax liabilities
  
37
   
2,128
 
Total deferred tax liabilities
 
$
1,229
  
$
2,529
 
 
(1) The Company’s net operating loss will expire as follows (dollar amounts in thousands):

Jurisdiction
 
Gross NOL
  
Tax Effected NOL
  
Expiration Years
 
Canada
 
$
—
   
—
   
2043
 
Cyprus
  
5
   
1
   
2019
 
Denmark
  
1
   
—
   
Indefinite
 
Mexico
  
9,000
   
2,700
   
2020-2023
 
Norway
  
448
   
121
   
Indefinite
 
Singapore
  
28
   
5
   
Indefinite
 
Sweden
  
541
   
119
   
Indefinite
 
Switzerland
  
13,612
   
1,234
   
2016-2020
 
Taiwan
  
7,152
   
1,215
   
2016-2023
 
Ukraine
  
678
   
122
   
Indefinite
 
United States (states)
  
12,996
   
325
   
2015-2032
 
 
At December 31, 2014 and 2013, the Company’s valuation allowance was $9.7 million and $5.3 million, respectively. The provisions of ASC Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing a deferred tax asset cannot be met. A company is to use judgment in reviewing both positive and negative evidence of realizing a deferred tax asset. Furthermore, the weight given to the potential effect of such evidence is commensurate with the extent the evidence can be objectively verified.

The valuation allowances presented below (in millions) at December 31, 2014 and 2013, represented a reserve against the Company’s net deferred tax asset the Company believed the “more likely than not” criterion for recognition purposes could not be met. The U.S. valuation allowance increased due to the carryover of foreign tax credits that we do not anticipate to utilize in future years.

Country
 
2014
  
2013
 
Mexico
 
$
2.7
  
$
2.7
 
Norway
  
0.1
   
0.2
 
Sweden
  
0.1
   
0.1
 
Switzerland
  
1.2
   
0.2
 
Taiwan
  
1.2
   
1.2
 
Ukraine
  
0.1
   
0.1
 
United States
  
4.3
   
0.8
 
Total
 
$
9.7
  
$
5.3
 

At December 31, 2014 and 2013, the Company did not record a provision for any United States or foreign withholding taxes on its undistributed earnings related to its foreign subsidiaries because it is the intention of the Company to reinvest its undistributed earnings indefinitely in its foreign operations. Generally, such earnings become subject to United States income tax upon the remittance of dividends and under certain other circumstances. At December 31, 2014, it is not practicable to estimate the amount of deferred tax liability on such undistributed earnings.

Deferred tax assets (liabilities) are classified in the accompanying Consolidated Balance Sheets of December 31 as follows (in thousands):

  
2014
  
2013
 
Current deferred tax assets
 
$
1,141
  
$
1,578
 
Noncurrent deferred tax assets
  
3,320
   
1,303
 
Current deferred tax liabilities
  
(123
)
  
(114
)
Other long-term liabilities
  
(26
)
  
(9
)
Net deferred tax assets
 
$
4,312
  
$
2,758
 

On January 1, 2007, the Company adopted FIN 48, which was codified into Topic 740, which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements, uncertain tax positions that it has taken or expects to take on a tax return. Topic 740 requires that a company recognize in its financial statements the impact of tax positions that meet a “more likely than not” threshold, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of December 31, 2014, the Company recorded $0.1 million in current liabilities and $0.7 million in other long-term liabilities related to uncertain income tax positions and income tax reserves associated with various audits. At December 31, 2014, the Company had gross tax-affected unrecognized tax benefits of $0.8 million that, if recognized, would impact the effective tax rate. The Company recognizes penalties and interest charges related to unrecognized tax benefits in current tax expense. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows, for the years ended December 31, 2014 and 2013 (in thousands):
 
  
2014
  
2013
 
Balance as of January 1
 
$
738
  
$
3,039
 
Additions for tax positions related to the current year
  
1
   
436
 
Additions for tax positions of prior years
  
111
   
292
 
Reductions of tax positions of prior years
  
(47
)
  
(3,029
)
Balance as of December 31
 
$
803
  
$
738
 
 
The examination of our 2005-2009 tax years by the IRS for U.S. federal tax purposes was settled during the second quarter of 2013. In connection with the audit, the IRS and the Company agreed to a net tax deficiency of $0.8 million and the payment of interest accrued through June 30, 2013 of $0.2 million, without any penalties, which was paid during the third quarter of 2013. In connection with the settlement of the audit, the Company reclassified amounts owed to the IRS and previously recorded as uncertain tax positions as taxes payable, resulting in a $1.0 million tax benefit during the year of 2013.

The Company files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. As of December 31, 2014, the tax years that remained subject to examination by a major tax jurisdiction for the Company’s most significant subsidiaries were as follows:

Jurisdiction
 
Open Years
 
Australia
  
2010-2014
 
Canada
  
2010-2014
 
Denmark
  
2011-2014
 
Japan
  
2011-2014
 
Mexico
  
2010-2014
 
Norway
  
2008-2014
 
Republic of Korea
  
2009-2014
 
Singapore
  
2010-2014
 
South Africa
  
2011-2014
 
Sweden
  
2009-2014
 
Switzerland
  
2009-2014
 
Taiwan
  
2009-2014
 
United Kingdom
  
2008-2014
 
United States
  
2008-2014