Income Taxes

Loss before income taxes consisted of the following (dollars in thousands):



	Year Ended March 31,
	2013			2012			2011
United States	$	(21,555	)	$	(4,303	)	$	(1,900	)
Non-United States	(279		)	(1,128		)	(108		)
	$	(21,834	)	$	(5,431	)	$	(2,008	)

The provision (benefit) for income taxes was as follows (dollars in thousands):



	Year Ended March 31,
	2013			2012			2011
Current tax provision (benefit):
Federal	$	—		$	(563	)	$	157
State	(10		)	45			88
Foreign	218			158			280
	208			(360		)	525
Deferred tax provision (benefit):
Federal	445			876			(1,142		)
State	188			241			(323		)
Foreign	3			238			(301		)
	636			1,355			(1,766		)
	$	844		$	995		$	(1,241	)

The reported provision (benefit) for income taxes differs from the amount computed by applying the statutory federal income tax rate of 34% to loss before income taxes as follows (dollars in thousands):



	Year Ended March 31,
	2013			2012			2011
Tax benefit computed at statutory rates	$	(7,579	)	$	(1,851	)	$	(682	)
State taxes, net of federal benefit	(1,672		)	(419		)	(168		)
Research credits	(454		)	(480		)	(786		)
Non-deductible expenses	133			130			113
Tax exempt income	(56		)	(158		)	(154		)
Unrecognized tax benefits	83			(315		)	337
Meals and entertainment	75			70			66
Foreign tax rate differences	(81		)	(53		)	(77		)
Change in valuation allowance	10,052			4,002			150
Purchase accounting adjustment	—			—			(42		)
Adjustment to deferred income tax rate	59			39			—
Other	284			30			2
	$	844		$	995		$	(1,241	)

Deferred tax assets (liabilities) consisted of the following components (dollars in thousands):



	March 31,
	2013			2012
Current deferred taxes:
Accrued expense	$	282		$	225
Prepaid expenses	(76		)	(68		)
Other current	9			142
Total current deferred taxes	215			299
Valuation allowance - current	(251		)	(251		)
Net current deferred taxes	(36		)	48
Non-current deferred taxes:
Depreciation and amortization	(800		)	69
Deferred rent	989			589
Accelerated research and experimentation expenditures	(4,042		)	(3,517		)
Stock-based compensation	6,442			5,167
Net operating and capital loss carryforwards	9,510			710
Federal and state tax credits	1,076			618
Other	142			124
Total non-current deferred taxes	13,317			3,760
Valuation allowance	(13,891		)	(3,839		)
Net non-current deferred taxes	(574		)	(79		)
Net deferred taxes	$	(610	)	$	(31	)

Total gross deferred tax assets were approximately $18.5 million and $7.6 million at March 31, 2013 and 2012, respectively, and total deferred tax liabilities were approximately $4.9 million and $3.6 million, respectively. The increase to our valuation allowance was $10.1 million, $3.9 million and $150,000 in Fiscal 2013, 2012 and 2011, respectively.

As of March 31, 2013 and 2012, tax benefits (charges) of approximately zero and $(53,000), respectively, were recorded in accumulated other comprehensive income related to the unrealized (gains) losses on investments classified as available for sale.

As of March 31, 2013 and 2012, we had federal net operating loss carryforwards totaling approximately $27.6 million and $5.3 million, respectively, of which approximately $27.6 million and $5.3 million, respectively, have been offset by a valuation allowance. Upon utilization, a benefit of $21.3 million will be recorded in our Consolidated Statements of Operations and the remainder will be recorded in stockholders’ equity. The federal net operating loss carryforwards expire in Fiscal 2031 through 2033.

As of March 31, 2013 and 2012, we had gross state, county and local net operating loss carryforwards of approximately $97.5 million and $30.6 million, respectively, of which approximately $97.5 million and $30.6 million, respectively, have been offset by a valuation allowance. To clarify, the state gross net operating loss carryforwards are comprised of $31.2 million for the State of Oregon, $30.4 million for Multnomah County, $30.4 million for the City of Portland, and $5.5 million for all other jurisdictions. If utilized, a benefit of $1.5 million would be recorded in our Consolidated Statements of Operations and the remainder would be recorded in stockholders’ equity. The state net operating loss carryforwards expire in Fiscal 2014 through 2033.

As of March 31, 2013 and 2012, we had foreign net operating loss carryforwards totaling approximately $0.7 million and $2.1 million, respectively. Of these amounts, we reserved approximately $0.7 million and $2.0 million in Fiscal 2013 and 2012, respectively. Upon utilization, the net operating loss benefit will be recorded in our Consolidated Statements of Operations. A portion of the foreign net operating loss carryforwards expire in Fiscal 2016 through 2023, while the remainder carries forward indefinitely.

As of March 31, 2013 and 2012, we had federal research credit carryforwards totaling approximately $1.8 million and $1.4 million, respectively. Upon utilization, $1.1 million of the March 31, 2013 federal research credit carryforward and $0.6 million of the March 31, 2012 federal research credit carryforward will be recorded in our Consolidated Statements of Operations. The federal research credit carryforwards expire in Fiscal 2029 through 2033.

As of March 31, 2013 and 2012, we had state research credit carryforwards of approximately $0.6 million and $0.5 million, respectively. Upon utilization, $0.5 million of the March 31, 2013 state research credit carryforward and $0.3 million of the March 31, 2012 state research credit carryforward will be recorded in our Consolidated Statements of Operations. The state research credit carryforwards expire in Fiscal 2015 through 2018.

In assessing the ability to realize deferred tax assets, we consider 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 those temporary differences become deductible and/or whether loss carryback opportunities exist. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

As of March 31, 2013, based on these assessments, considerations and the lack of expected taxable income in the near term in the United States, France, Australia, Mexico and Argentina, we are providing a valuation allowance against our deferred tax assets in those jurisdictions. We anticipate that all other deferred tax assets will be realized based on future estimated taxable income.

As of March 31, 2013, no provision has been made for the United States, state or additional foreign income taxes related to undistributed losses of foreign subsidiaries which have been, or are intended to be, permanently reinvested outside of the United States. We do not have foreseeable plans to consider the subsidiaries as held for sale; therefore no deferred assets are being recorded.

Following is a roll-forward of our unrecognized tax benefits (in thousands):



Balance at March 31, 2010	$	958
Additions for tax positions taken in Fiscal 2011	139
Additions for tax positions taken in prior fiscal years	178
Balance at March 31, 2011	1,275
Additions for tax positions taken in Fiscal 2012	279
Decreases for lapses in statutes of limitation	(551		)
Balance at March 31, 2012	1,003
Additions for tax positions taken in Fiscal 2013	145
Additions for tax positions taken in prior fiscal years	7
Decreases for lapses in statutes of limitation	(75		)
Balance at March 31, 2013	$	1,080

All of our unrecognized tax benefits would have an impact on the effective tax rate if recognized. Interest and penalties accrued on unrecognized tax benefits were approximately $124,000 and $91,000 at March 31, 2013 and 2012, respectively. Net interest and penalties recognized as a component of the tax provision in Fiscal 2013, 2012 and 2011 totaled approximately $33,000, $14,000 and $52,000, respectively.

We file United States federal income tax returns, foreign income tax returns in various jurisdictions and multiple state and local tax returns, of which Oregon is our largest jurisdiction. The open tax years subject to examination are March 31, 2006 to March 31, 2013 for the United States federal returns. The open tax years in all other jurisdictions range from March 31, 2004 to March 31, 2013. A potential reduction to the unrecognized tax benefits of approximately zero to $372,000, before interest, may occur in the next twelve months as a result of expiring statute of limitations periods.