NOTE

: INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company's deferred tax assets are as follows:

	December 31,
	2016			2015
Deferred tax asset:
Net operating loss	$	2,206		$	2,233
Reserves and allowances		295			225
Tax Credit carryforward		153			153
Property and equipment		194			142
Total deferred tax asset		2,848			2,753
Valuation allowance		(2,848	)		(2,753	)
Deferred tax asset, net	$	—		$	—

The Company had Federal and state net operating loss carryforwards of approximately

$5,334

and

$3,622,

respectively, available to offset future taxable income, expiring at various times from

December

31through

December

31,

2036.

In accordance with Section

382

of the Internal Revenue Code, the future utilization of the Company’s net operating loss to offset future taxable income

may

be subject to an annual limitation as a result of ownership changes that

may

have occurred previously or that could occur in the future. The Company has not yet determined whether such an ownership change has occurred; however

, the Company will be completing a Section

382

analysis regarding the limitation of the net operating loss.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or 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 temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax assets, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available and due to the last

five

years significant losses there is substantial doubt related to the Company’s ability to utilize its deferred tax assets, the Company recorded a full valuation allowance of the deferred tax asset. For the year ended

December

31,

2016,

the valuation allowance has increased by

$95

The

2013

through

2016

tax years remain open to examination by the Internal Revenue Service (

“IRS”

) and the

2012

through

2016

tax years remain open to examination by the California Franchise Tax Board (

“FTB”

). The IRS and FTB have the authority to examine those tax years until the applicable statute of limitations expires

As of

December

31,

2016,

the Company’s foreign subsidiary had accumulated losses for income tax purposes in the amount of approximately

$906.

All of the Company’s international accumulated losses were generated in the United Kingdom, which has a statutory tax rate of

20%.

These net operating losses

may

be carried forward and offset against taxable income in the future for an indefinite period.

The Company has not recognized a U.S. deferred income tax asset on non-U.S. losses because the Company plans to indefinitely reinvest such earnings outside the U.S. Remittances of non-U.S. earnings, if any, are based on estimates and judgments of projected cash flow needs, as well as the working capital and investment requirements of the Company’s non-U.S. and U.S. operations. Material changes in the Company’s estimates of cash, working capital, and investment needs could require repatriation of indefinitely reinvested non-U.S. earnings, which would be subject to U.S. income taxes and applicable non-U.S. income and withholding taxes.

The net income tax benefit consists of the following:

	December 31,
	2016			2015
Current
Foreign	$	(20	)	$	(1	)
Federal		—			—
State		—			—
Income tax (benefit)	$	(20	)	$	(1	)

The Company’s effective tax rates were

(1.7%)

and

(0.1%)

for the years ended

December

31,

2016

and

2015,

respectively. During the year ended

December

31,

2016,

the effective tax rate differed from the U.S. federal statutory rate primarily due to the change in the valuation allowance and the issuance of incentive stock options to the Company’s employees. The reconciliation of income tax attributable to operations computed at the U.S. Federal statutory income tax rate of

34%

to income tax expense is as follows:

	Year Ended December 31,
	2016			2015
Tax benefit at U.S. Federal statutory tax rate		(34.0%	)		(34.0%	)
Increase (decrease) in tax rate resulting from:
Stock compensation expense		12.1	%		—
Taxes in respect of prior years		9.1	%		0.2	%
Increase in valuation allowance		8.3	%		28.0	%
Nondeductible meals & entertainment expense and other		4.4	%		7.2	%
State taxes, net of federal benefit		0.3	%		—
Foreign rate differential		(0.2%	)		(1.5%	)
Foreign R&D credit		(1.7%	)		—
Effective tax rate		(1.7%	)		(0.1%	)

The Company accounts for uncertain tax positions in accordance with ASC No.

740

25.

ASC No.

740

addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC No.

740

25,

the Company

may

recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than

fifty

percent likely of being realized upon ultimate settlement. To the extent that the final tax outcome of these matters is different than the amount recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense. ASC No.

740

also requires management to evaluate tax positions taken by the Company and recognize a liability if the Company has taken uncertain tax positions that more likely than not would not be sustained upon examination by applicable taxing authorities. Management of the Company has evaluated tax positions taken by the Company and has concluded that as of

December

31,

2016

and

2015,

there are

uncertain tax positions taken, or expected to be taken, that would require recognition of a liability that would require disclosure in the financial statements.