7.	Income Taxes

Income (loss) before income taxes consists of the following (in thousands):


	Year Ended December 31,
	2013			2012
U.S.	$	(3,084	)	$	1,687
Foreign		21			(405	)

Total	$	(3,063	)	$	1,282

Income tax expense consists of the following (in thousands):


	Year Ended December 31,
	2013			2012
Current taxes:
Federal	$	—		$	—
State and local		(14	)		27
Foreign		52			72

Current taxes		38			99
Deferred taxes:
Federal	$	2,181		$	459
State and local		—			—
Foreign		(25	)		(192	)

Deferred taxes		2,156			267

Total	$	2,194		$	366

The components of net deferred tax assets consist of the following (in thousands):


	December 31,
	2013			2012
Net deferred income tax assets:
Depreciation and amortization	$	775		$	917
Accrued expenses and reserves		2,968			1,771
Net operating loss carryforwards		20,652			20,509
Capital loss carryforwards		290			290
Research and development credit carryforwards		2,673			2,535
Stock-based compensation		487			425

Gross deferred tax assets		27,845			26,447

Less: valuation allowance		(27,673	)		(24,102	)

Net deferred tax assets	$	172		$	2,345

Our net deferred tax assets are recorded as follows (in thousands):


	December 31,
	2013			2012
Net deferred tax assets:
Deferred tax assets—current	$	12		$	296
Deferred tax assets—non-current		304			2,255
Deferred tax liability		(144	)		(206	)

Net deferred tax assets	$	172		$	2,345

As of December 31, 2013, our deferred tax assets were primarily the result of U.S. NOL and tax credit carryforwards. A valuation allowance of $27.7 million and $24.1 million was recorded against our gross deferred tax asset balance as of December 31, 2013, and December 31, 2012, respectively. For the year ended December 31, 2013, we recorded an increase in valuation allowance of $3.6 million on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. As of each reporting date, our management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets. In the third quarter of 2013, we determined that is was not more likely than not that we would generate sufficient future taxable income to utilize the portion of our net US deferred tax assets, which had been previously recognized, and we increased our valuation allowance in the U.S. by $2.2 million. Deferred tax assets relative to our foreign tax jurisdictions were not affected.

The provision for income taxes differs from the amount of expected income tax expense (benefit) determined by applying the applicable U.S. statutory federal income tax rate to pre-tax income (loss), as a result of the following:


	Year Ended December 31,
	2013			2012
Taxes at the U.S. statutory rate		34.0	%		34.0	%
Increase (decrease) resulting from:
Tax credits		4.5			—
State income tax		0.6			0.7
International operations		10.3			(21.3	)
Incentive stock options		(0.6	)		1.0
Valuation allowance		(118.0	)		(8.3	)
Expiration of state NOLs		(6.2	)		22.1
Other, net		3.7			0.4

		(71.7	)%		28.6	%

At December 31, 2013, we had approximately $55.6 million of federal and $9.3 million of state net operating loss carryforwards, which have begun to expire, including $3.3 million of state losses in 2013. Of the federal net operating loss carryforwards, an aggregate of $42.5 million will expire in 2022 and 2023. We also have $2.7 million of tax credit carryforwards, which begin to expire in 2018. Utilization of these carryforwards may be subject to an annual limitation due to Section 382 of the U.S. Internal Revenue Code which restricts the ability of a corporation that undergoes an ownership change to use its carryforwards. Under the applicable tax rules, an ownership change occurs if holders of more than five percent of an issuer’s outstanding common stock, collectively, increase their ownership percentage by more than 50 percentage points over a rolling three-year period. We performed analyses of possible ownership changes, which included consideration of a third party study completed in 2012, and do not believe that an ownership change of more than 50 percentage points has occurred. While the study has not been updated in 2013, we do not believe there have been any further impacts on the results of that analysis in 2013.

We have evaluated all the material income tax positions taken on our income tax filings to various tax authorities, and we determined that we did not have unrealized tax benefits related to uncertain tax positions recorded at December 31, 2013 or 2012.

Because of net operating loss and tax credit carryforwards, substantially all of our tax years remain open and subject to examination.