12. Income Taxes

The components of (loss) income before income taxes for the years ended December 31, 2011, 2012, and 2013 are as follows (in thousands):

	2011			2012			2013

Domestic	$	(683	)	$	3,959		$	8,237
Foreign		(1,738	)		(441	)		(2,264	)


(Loss)income before income tax provision	$	(2,421	)	$	3,518		$	5,973

The provision for income tax expense for the years ended December 31, 2011, 2012 and 2013 consists of the following components (in thousands):

	2011		2012			2013

State	$	229	$	330		$	119
Foreign		—		(33	)		492


Total current expense		229		297			611


Deferred tax provision:
Federal	$	282	$	458		$	737
State		23		40			273
Foreign		—		(315	)		(610	)


Total deferred expense		305		183			400


Total income tax provision	$	534	$	480		$	1,011

Income taxes related to the Company's income (loss) from operations differ from the amount computed using the federal statutory income tax rate as follows (in thousands):

	Years Ended December 31,

	2011			2012			2013
Tax (benefit) provision computed at the federal statutory rate	$	(847	)	$	1,231		$	2,090
Increase in fair value of warrants for redeemable convertible preferred stock		699			—			—
Foreign operating losses		174			—			—
Foreign tax rate differential		—			(127	)		(3	)
Tax benefit of exercised stock options and warrants		(3,375	)		(9,996	)		(1,423	)
Research and development tax credits		(507	)		(205	)		51
Adjustment to prior year deferred and other		449			(1,439	)		227
Change in valuation allowance		3,407			10,302			(1,008	)
Taxable goodwill		305			499			737
State income taxes		229			215			340


Provision for income taxes	$	534		$	480		$	1,011

The provision for income taxes differs from the expected tax provision computed by applying the U.S. federal statutory rate to the income before income taxes because the Company has historically maintained a full valuation allowance on its deferred tax assets, as described more fully below, as well as differences in the tax-deductibility of certain items for income tax purposes as compared to the amounts that have been or will be expensed in the Company's Consolidated Statement of Operations, including certain stock warrant and stock option exercises, the increase in fair value of warrants for redeemable convertible preferred stock, foreign tax rate differentials, taxable goodwill and state income taxes.

As of December 31, 2012 and 2013, the Company's deferred tax assets (liabilities) were as follows (in thousands):

	2012			2013

Deferred tax assets:
Net operating losses	$	26,002		$	19,675
Unused research and development credits		3,318			3,450
Deferred revenue		743			885
Stock-based compensation		2,937			4,235
Accrued expenses		441			570
Deferred rent		198			149
Fixed Assets		108			276
Acquisition-related expenses		61			68
Allowance for doubtful accounts		194			79
Alternative Minimum Tax credit available		34			34
Other		85			166
Less: valuation allowance		(29,048	)		(25,930	)


	$	5,073		$	3,657
Deferred tax liabilities:
Intangible assets		(7,676	)		(6,727	)
Fixed assets		—			—
Other		(102	)		(22	)


Net deferred tax liability	$	(2,705	)	$	(3,092	)

The Company recorded no federal income tax provision in 2012 and 2013 due to taxable losses incurred primarily as a result of tax deductions for stock options and stock warrants in 2012 and the utilization of net operating loss carryforwards in 2013. State income taxes have resulted primarily from taxes on capital, taxes on gross receipts and minimum taxes imposed by the various states in which the Company operates.

Prior to 2012, there were no foreign income taxes due to taxable losses incurred by the foreign entities. During the year ended December 31, 2013, the Company recognized a current foreign tax expense attributable to overall taxable income produced by several foreign entities.

The Company recorded a deferred income tax provision of $0.3 million, $0.2 million and $0.4 million in the years ended December 31, 2011, 2012 and 2013 respectively, related to the different book and tax treatment for goodwill and other intangible assets. For tax purposes, certain goodwill and intangible assets are subject to different amortization allowances than for book purposes. The deferred tax liability of approximately $2.7 million and $3.1 million at December 31, 2012 and 2013, respectively, is included in the Company's consolidated balance sheets within other long-term liabilities.

The Company has provided a valuation allowance for the full amount of its deferred tax assets at December 31, 2012 and 2013, as it is not more likely than not that any future benefit from deductible temporary differences and net operating loss and tax credit carryforwards would be realized. The decrease in the valuation allowance of $3.1 million for the year ended December 31, 2013, as compared to the year ended December 31, 2012, is primarily attributable to the utilization net operating loss carryforwards.

As of December 31, 2013, the Company has federal net operating loss carryforwards of approximately $44.7 million, which, if unused, expire from 2021 to 2032. In addition to this amount, the Company has approximately $41.0 million of federal income tax loss carryforwards resulting from tax deductions related to stock options awarded to employees. Pursuant to ASC 718-740-25-10, the tax benefits of these deductions will be realized only at the point at which the deductions reduce income taxes payable. The Company also has federal research and development credit carryforwards of approximately $3.5 million at December 31, 2013, which are available to offset future federal tax liabilities.

Sections 382 and 383 of the Internal Revenue Code, and similar state regulations, contain provisions that may limit the net operating loss carryforwards available to be used to offset income in any given year upon the occurrence of certain events, including changes in the ownership interests of significant stockholders. In the event of a cumulative change in ownership in excess of 50% over a three-year period, the amount of the net operating loss carryforwards that the Company may utilize in any one year may be limited. The Company has completed several financings since its inception, which, when combined with the purchasing stockholders' subsequent disposition, have resulted in a change in control as defined by Section 382, or could result in a change in control in the future. In addition, the net operating loss carryforwards assumed from the acquisition of ProfitLine are subject to the provisions of Section 382. In aggregate, approximately $57.1 million of the Company's $85.7 million net operating loss carryforwards are available to offset future taxable income as of December 31, 2013, and the remaining $28.6 million will become available in prescribed increments in each future year through December 31, 2031.

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and various foreign jurisdictions. The Company's income tax returns are open to examination by federal, state and foreign tax authorities, generally for the years ended December 31, 2010 and later, with certain state jurisdictions open for audit for earlier years. The Company has no amount recorded for any unrecognized tax benefits as of December 31, 2012 and 2013, nor did the Company record any amount for the implementation of ASC 740. The Company's policy is to record estimated interest and penalty related to the underpayment of income taxes or unrecognized tax benefits as a component of its income tax provision. During the years ended 2011, 2012 and 2013, the Company did not recognize any interest or penalties in its statements of operations and there are no accruals for interest or penalties at December 31, 2012 or 2013.

Pursuant to ASC 740-30-25, provision has not been made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries as the Company maintains that those earnings are deemed indefinitely reinvested. The Company plans to utilize undistributed earnings to finance expansion and operating requirements of subsidiaries outside of the United States. As of December 31, 2013, the Company has undistributed foreign earnings of approximately $1.8 million. Such earnings will be reinvested but could become subject to additional tax if they were remitted as dividends or were loaned to the Company or U.S. affiliates, or if the Company should sell or dispose of its stock in the foreign subsidiaries. It is not practical to determine the deferred tax liability, if any, that might be payable on foreign earnings because if the Company were to repatriate these earnings, the Company believes there would be various methods available to it, each with different U.S. tax consequences.