11. Income Taxes

The consolidated loss before income taxes, by domestic and foreign sources, is as follows:

(in thousands)	Years ended December 31,
	2014				2013
Domestic		$	(4,608	)		$	(7,797	)
Foreign			(1,968	)			(2,568	)
Total		$	(6,576	)		$	(10,365	)

The provision for income taxes is as follows:

(in thousands)	Years ended December 31,
	2014			2013
Current:
Federal	$	-		$	4
State		10			22
Foreign		178			382
Subtotal		188			408

Deferred:
Federal		24			-
Foreign		(46	)		(262	)
Subtotal		(22	)		(262	)
Total	$	166		$	146

The Company is entitled to a deduction for federal and state tax purposes with respect to employees' stock option activity. As of December 31, 2014, the Company had $5.4 million of unrecognized excess tax deductions related to compensation for stock option exercises which will be recognized when the net operating loss carryforwards are fully utilized and those excess tax benefits result in a reduction to income taxes payable.

The effective income tax rate differed from the statutory federal income tax rate due to the following:

	Effective Tax Rate Percentage (%)
	Years ended December 31,
	2014	2013
Statutory federal income tax rate	34.0%	34.0%
State income taxes, net of federal tax benefit	(0.1)%	(0.1)%
Effect of foreign operations	(10.2)%	(6.9)%
Tax benefit resulting from OCI allocation	0.0%	0.5%
Change in valuation allowance	(22.8)%	(12.1)%
Other, principally permanent differences	(3.4)%	(16.8)%
Effective tax rate	(2.5)%	(1.4)%

Deferred income taxes arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. A summary of the tax effect of the significant components of the deferred income tax liabilities is as follows:

(in thousands)	Years ended December 31,
	2014			2013
Deferred tax assets:
Net operating loss carryforwards	$	7,745		$	5,589
Capital loss carryforwards		615			703
Accruals		485			337
Reserves		521			611
Alternative minimum tax credit carryforwards		166			166
Other		1,484			1,701
Total deferred tax asset		11,016			9,107
Valuation allowance		(10,006	)		(7,057	)
Total deferred tax asset less valuation allowance		1,010			2,050

Deferred tax liabilities:
Undistributed earnings of foreign subsidiary		(102	)		(1,228	)
Software development costs		(542	)		(384	)
Other		(397	)		(491	)
Total deferred tax liability		(1,041	)		(2,103	)

Net deferred tax liability	$	(31	)	$	(53	)

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some 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 those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future income in making this assessment.

Management believes that the Company will achieve profitable operations in future years that will enable the Company to recover the benefit of its deferred tax assets. However, other than for a portion of the deferred tax assets that are related to the Company's Indian subsidiary, the Company presently does not have sufficient objective evidence to substantiate the recovery of the deferred tax assets. Accordingly, the Company has established a full $10.0 million valuation allowance on its U.S., Swedish, and Chinese deferred tax assets at December 31, 2014. The valuation allowance for deferred tax assets increased by $2.9 million in 2014, and increased by $31,000 in 2013.

The Company has recorded a deferred tax liability in the amount of $24,000 at December 31, 2014, relating to the tax amortization of goodwill that cannot be offset by deferred tax assets because the anticipated reversal of the deferred tax liability is outside of the anticipated reversal of the deferred tax assets.

At December 31, 2014, the Company's largest deferred tax asset of $6.8 million primarily relates to a U.S. net operating loss carryforward of $19.1 million which expires in various amounts between 2020 and 2034. The amount of U.S. loss carryforward which can be used by the Company each year is limited due to changes in the Company's ownership which occurred in 2003. Thus, a portion of the Company's loss carryforward may expire unutilized.

Uncertain Tax Positions

During 2014 and 2013, the Company also recorded $20,000 and $187,000, respectively, of tax liabilities for certain foreign tax contingencies, respectively. The Company made payments of $211,000 and $103,000 during 2014 and 2013, respectively, related to these foreign tax liabilities. The Company recorded these uncertain tax positions in other current liabilities on the consolidated balance sheet, and recorded the associated interest and penalties as a component of income tax expense. In 2014 and 2013, the Company accrued $2,000 and $2,000 of interest and penalties, respectively.

Intraperiod tax allocation

The Company utilizes the with-and-without intraperiod tax allocation approach as described in ASC 740-20-45-12 which results in the use of the windfall tax benefits being utilized last.