11. Income Taxes

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

(in thousands)	Years ended December 31,
	2015				2014
Domestic		$	(4,260	)		$	(5,195	)
Foreign			26				(1,968	)
Total		$	(4,234	)		$	(7,163	)

The provision for income taxes is as follows:

(in thousands)	Years ended December 31,
	2015		2014
Current:
Federal	$	-	$	-
State		12		10
Foreign		288		178
Subtotal		300		188

Deferred:
Federal		146		24
Foreign		25		(46	)
Subtotal		171		(22	)
Total	$	471	$	166

The Company is entitled to a deduction for federal and state tax purposes with respect to employees' stock option activity. As of December 31, 2015, the Company had $4.7 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,
	2015	2014
Statutory federal income tax rate	34.0%	34.0%
State income taxes, net of federal tax benefit	(0.2)%	(0.1)%
Effect of foreign operations	(3.0)%	(10.2)%
Change in valuation allowance	(33.8)%	(22.8)%
Permanent differences	(3.6)%	(2.1)%
Other	(4.5)%	(1.3)%
Effective tax rate	(11.1)%	(2.5)%

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

(in thousands)	As of December 31,
	2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	8,732		$	7,745
Capital loss carryforwards		954			615
Accruals		766			485
Reserves		615			521
Alternative minimum tax credit carryforwards		166			166
Stock-based compensation expense		1,450			1,445
Other		199			39
Total deferred tax asset		12,882			11,016
Valuation allowance		(12,082	)		(10,006	)
Total deferred tax asset less valuation allowance		800			1,010

Deferred tax liabilities:
Undistributed earnings of foreign subsidiary		(17	)		(102	)
Software development costs		(446	)		(542	)
Other		(538	)		(397	)
Total deferred tax liability		(1,001	)		(1,041	)

Net deferred tax liability	$	(201	)	$	(31	)

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 $12.1 million valuation allowance on its U.S., Swedish, and Chinese deferred tax assets at December 31, 2015. The valuation allowance for deferred tax assets increased by $2.1 million in 2015 and increased by $2.9 million in 2014.

The Company has a deferred tax liability in the amount of $170,000 and $24,000 at December 31, 2015, and 2014, respectively, 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, 2015, the Company's largest deferred tax asset of $7.9 million primarily relates to a U.S. net operating loss carryforward of $21.9 million which expires in various amounts between 2020 and 2035. 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

Domestic Uncertain Tax Positions

In 2014 the Company accrued $2,000 of interest and penalties related to its domestic uncertain tax positions. These uncertain positions expired in 2015.

Foreign Uncertain Tax Positions

During 2015 and 2014, the Company recorded $130,000 and $23,000, respectively, of tax liabilities for certain foreign tax contingencies. The Company recorded these uncertain tax positions in other current liabilities on the consolidated balance sheets. In 2014 the Company accrued no interest and penalties related to its foreign uncertain tax positions; $167,000 was accrued in 2015.

The following table outlines the Company's foreign uncertain tax liabilities.

	China				Ukraine
(in thousands)	Tax		Interest and Penalties		Tax		Interest and Penalties		Total

Balance, December 31, 2013	$	199,000	$	-	$	61,000	$	-	$	260,000
Increases		23,000		-		-		-		23,000
Decreases		-		-		-		-		-
Balance, December 31, 2014	$	222,000	$	-	$	61,000	$	-	$	283,000
Increases		3,000		152,000		-		15,000		170,000
Decreases		-		-		40,000		-		40,000
Balance, December 31, 2015	$	225,000	$	152,000	$	21,000	$	15,000	$	413,000