7.	Income Taxes

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

	Year Ended
	December 31,
	2016			2015
U.S.	$	(580	)	$	6,280
Foreign		(331	)		283
Total	$	(911	)	$	6,563

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

	Year Ended
	December 31,
	2016			2015
Current taxes:
Federal	$	(24	)	$	104
State and local		38			39
Foreign		41			97
Current taxes		55			240
Deferred taxes:
Federal	$	—		$	—
State and local		—			—
Foreign		86			230
Deferred taxes		86			230
Total	$	141		$	470

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

	December 31,
	2016			2015
Net deferred income tax assets (liability):
Depreciation and amortization	$	365		$	322
Accrued expenses and reserves		411			720
Net operating loss carryforwards		20,448			20,135
Research and development credit carryforwards		2,740			2,673
Stock-based compensation		840			750
Other		91			—
Gross deferred tax assets		24,895			24,600
Less: valuation allowance		(24,911	)		(24,552	)
Net deferred tax assets (liability)	$	(16	)	$	48

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

	December 31,
	2016			2015
Net deferred tax assets (liability):
Deferred tax assets—non-current	$	7		$	145
Deferred tax liability		(23	)		(97	)
Net deferred tax assets (liability)	$	(16	)	$	48

As of December 31, 2016, our deferred tax assets were primarily the result of U.S. net operating loss and research and development credit carryforwards. We have applied a full valuation allowance against the U.S. deferred tax assets and a partial valuation allowance against deferred tax assets in Japan. Valuation allowances of $24.9 million and $24.6 million have been recorded against our gross deferred tax asset balances as of December 31, 2016 and December 31, 2015, respectively.

We apply the guidance of ASC 740, which requires us to use judgment as to the appropriate weighting of all available evidence when assessing the need for the establishment or the release of valuation allowances. As part of this analysis, we examine all available evidence on a jurisdiction-by-jurisdiction basis and weigh the positive and negative information when determining the need for full or partial valuation allowances. The evidence considered for each jurisdiction includes, among other items, (i) the historical levels of income or loss over a range of time periods that extends beyond the two years presented, (ii) the historical sources of income and losses, (iii) the expectations and risk associated with underlying estimates of future taxable income, (iv) the expectations and risk associated with new product offerings and uncertainties with the timing of future taxable income, and (v) prudent and feasible tax planning strategies. Based on the analysis conducted as of December 31, 2016, we determined that we would not release, in full or in part, the valuation allowance against our U.S. gross deferred tax assets.

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

	Year Ended
	December 31,
	2016					2015
U.S. Federal tax expense at statutory rates	$	(310	)	34.0	%	$	2,231		34.0	%
Increase (decrease) resulting from:
Tax credits		(170	)	18.6	%		130		2.0	%
State income tax		25		(2.7	)%		14		0.2	%
International operations		183		(20.1	)%		20		0.3	%
Incentive stock options		(23	)	2.6	%		(66	)	(1.0	)%
Valuation allowance		311		(34.2	)%		(2,121	)	(32.4	)%
Expiration of state net operating loss carryforwards		77		(8.5	)%		236		3.6	%
Other, net		48		(5.4	)%		26		0.4	%
Tax expense and effective tax rate	$	141		(15.7	)%	$	470		7.1	%

At December 31, 2016, we had approximately $55.7 million of federal and $1.8 million of state net operating loss carryforwards, which have begun to expire, including $0.2 million of state losses which will expire in 2017. Of the federal net operating loss carryforwards, an aggregate of $36.3 million will expire in 2022 and 2023. We also have $2.8 million of tax credit carryforwards, which begin to expire in 2018. Use of these carryforwards may subject us to an annual limitation due to Section 382 of the U.S. Internal Revenue Code that 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 have performed analyses of possible ownership changes in the past, which included consideration of third-party studies, and do not believe that an ownership change of more than 50 percentage points has occurred.

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, 2016 or 2015.

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