INCOME TAXES

The Company is subject to income taxes in the U.S., Switzerland and France. Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are calculated based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using the enacted income tax rates expected to be in effect during the years in which the temporary differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Significant judgment is required in determining whether a valuation allowance should be recorded against deferred tax assets. In assessing the need for a valuation allowance, management considers all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to income tax expense in the period in which such determination is made.

Income Tax Provision (Benefit)

Income (loss) before income taxes consisted of:



	Year Ended December 31,
	2019			2018
	(In thousands)
United States operations	$	(39,342	)	$	(33,843	)
Foreign operations	422			448
	$	(38,920	)	$	(33,395	)

A reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate is:



	Year Ended December 31,
	2019	2018
Federal statutory rate	21.0%	21.0%
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit	2.7%	3.2%
Foreign operations	(0.8)%	(0.5)%
Changes in valuation allowances	(24.7)%	(25.5)%
Uncertain tax positions	0.1%	0.3%
Research and development credit	0.2%	0.2%
Other	0.6%	0.9%
Effective tax rate	(0.9)%	(0.4)%

The provision/(benefit) for income taxes consisted of:



	Year Ended December 31,
	2019			2018
	(In thousands)
Current:
Federal	$	(27	)	$	(93	)
State	59			52
Foreign	39			44
Total current	$	71		$	3
Deferred:
Federal	—			—
State	—			—
Foreign	285			126
Total deferred	$	285		$	126
Provision (benefit) for income taxes	$	356		$	129

The income tax effects of significant temporary differences that give rise to deferred tax assets and liabilities, shown before jurisdictional netting, are presented below:



	Year Ended December 31,
	2019			2018
	(In thousands)
Deferred tax assets:
Doubtful accounts	$	27		$	212
Inventory related items	10,508			9,677
Tax credits	319			229
Accrued vacation	369			340
Accrued bonus	1,099			1,192
Stock compensation	4,431			3,790
Net operating loss carryforwards	38,149			30,210
Intangible and fixed assets	10,806			10,611
Other	1,000			942
Total deferred tax assets	66,708			57,203
Less valuation allowance	(65,576		)	(55,954		)
Deferred tax assets after valuation allowance	$	1,132		$	1,249
Deferred tax liabilities:
Other	988			817
Total deferred tax liabilities	$	988		$	817
Net deferred tax assets	$	144		$	432

At December 31, 2019, the Company had net operating loss carryforwards of $156.3 million for federal and state income tax purposes. The Company also had net operating loss carryforwards of $0.6 million for foreign income tax purposes. These loss carryforwards begin to expire in 2021 for foreign income tax purposes and in 2027 for federal and state income tax purposes, and continue to expire through 2039. The Company’s net operating loss carryforwards generated after 2017 for federal income tax purposes do not expire. The tax expense recorded for net operating losses, net of valuation allowance, was $0.3 million which relates only to foreign net operating losses.

At December 31, 2018, the Company had net operating loss carryforwards of $122.4 million for federal and state income tax purposes. The Company also had foreign net operating loss carryforwards of $1.9 million. These tax loss carryforwards begin to expire in 2021 and 2027 for foreign and federal and state income tax, respectively, and will expire through 2037. The tax benefit recorded for net operating losses, net of valuation allowance, was $0.1 million which relates only to foreign net operating losses.

The valuation allowance relates to deferred tax assets for certain items that will be deductible for income tax purposes under very limited circumstances and for which the Company believes it is not more likely than not that it will realize the associated tax benefit. However, in the event that the Company determines that it would be able to realize more or less than the recorded amount of net deferred tax assets, an adjustment to the deferred tax asset valuation allowance would be recorded in the period such a determination is made. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax planning strategies in making this assessment. Based upon the levels of historical taxable income, projections of future taxable income and the reversal of deferred tax liabilities over the periods in which the deferred tax assets are deductible, management believes it is more-likely-than-not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowance. The amount of deferred tax asset considered realizable, however, could change in the near term if estimates which require significant judgment of future taxable income during the carryforward period are increased or decreased.

The Company is not subject to the one-time transition tax on accumulated foreign earnings or the GILTI provisions enacted by the Tax Act because the Company's foreign operations have been included in its U.S. tax filings pursuant to an election to disregard its foreign entity for federal income tax purposes.

A reconciliation of the Company’s uncertain tax benefits is as follows:



	Year Ended December 31,
	2019			2018
	(In thousands)
Balance, beginning of year	$	255		$	277
Gross increases:
Prior years’ tax positions	15			1
Additions to tax positions in prior years due to spin-off	—			—
Current year tax positions	75			71
Gross decreases:
Settlements	—			—
Statute of limitations lapses	(26		)	(94		)
Balance, end of year	$	319		$	255

The Company recognizes interest and penalties relating to uncertain tax positions in income tax expense. The amounts recorded in 2019 and 2018 were not significant.

The Company files income tax returns as prescribed by tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, local and foreign jurisdictions where applicable based on the statute of limitations that apply in each jurisdiction. The Company has no open tax audits with any taxing authority as of December 31, 2019. The Company is still subject to income tax examinations by U.S. federal and state tax authorities for the years 2015 through 2019. Open years for foreign jurisdictions are from 2014 through 2019. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carryforward amount.