7.	Income Taxes

Income tax expense for the eight months ended March 23, 2013 was $1.41 million. The tax expense is allocated between components of continuing operations, discontinued operations and gain on sale of discontinued operations in accordance with the provisions of Accounting Standards Codification (“ASC”) 740:


	Eight months ended March 23, 2013
Tax benefit included in continuing operations	$	(4,356	)
Tax expense included in discontinued operations		1,385
Tax expense included in gain on sale of discontinued operations		4,387

Total tax expense continuing and discontinued operations	$	1,416

The approximately $4.35 million of tax benefits from continuing operations for the eight months ended March 23, 2013 are attributable to the intraperiod allocation of losses from continuing operations to income generated from discontinued operations, for which the losses would not have otherwise been benefitted under ASC 740.

The following table presents the components of our provision for income taxes (in thousands):


	Eight Months Ended March 23, 2013
Current:
Federal	$	79
State		14
Foreign		1,122

		1,215


Deferred:
Federal		—
State		—
Foreign		201

		201


Total tax provision	$	1,416

A reconciliation between the statutory federal income tax and the Company’s actual tax provision follows (in thousands):


	Eight Months Ended March 23, 2013
Statutory federal income tax benefit .	$	(734	)
State taxes, net of federal benefit .		38
Valuation allowance .		2,040
Other .		72


Tax provision	$	1,416

The components of the Company’s net deferred tax assets at July 31, 2014 and 2013 are as follows (in thousands):


	July 31,
	2014			2013
Deferred tax assets:
Net operating loss carryforwards	$	298,426		$	302,503
Credit carryforwards		21,301			21,520
Restructuring and related accruals		3,502			3,554
Capital loss carryforwards		672			1,181
Depreciation		971			977
Other, net		695			695

Total net deferred tax assets		325,567			330,430

Valuation allowance		(325,567	)		(330,430	)

Net deferred tax assets	$	—		$	—

Substantially all of the loss before income taxes as shown in the Consolidated Statement of Operations for the eight months ended March 23, 2013 was derived in the United States. Certain foreign wholly owned subsidiary companies were compensated on a cost plus basis resulting in the recognition of foreign taxable income and tax expense.

The Company did not record a current tax benefit for the net operating losses due to the Company’s substantial losses.

The Company is currently open to audit under statutes of limitation by the Internal Revenue Service, various foreign jurisdictions, and state jurisdictions for the fiscal years ended July 31, 2008 through July 31, 2014. However, limited adjustments can be made to federal and state tax returns in earlier years in order to reduce net operating loss carryforwards.

As of July 31, 2014, the Company had federal and state net operating loss (“NOL”) carryforwards of approximately $856.46 million and $34.9 million, respectively. The federal and state net operating loss carryforwards will expire at various dates through 2034. The Company also has federal and state research and development credit carryforwards of approximately $11.31 million and $9.98 million, respectively, which begin to expire in 2020 and 2015, respectively.

The occurrence of ownership changes, as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), is not controlled by the Company, and could significantly limit the amount of net operating loss carryforwards and research and development credits that can be utilized annually to offset future taxable income. The Company completed an updated Section 382 study through July 31, 2011 and the results of this study showed that no ownership change within the meaning of the Code had occurred through July 31, 2011 that would limit the annual utilization of available tax attributes.

The Company has evaluated the positive and negative evidence bearing upon the realization of its deferred tax assets and has established a valuation allowance of $325.56 million and $330.43 million as of July 31, 2014 and July 31, 2013, respectively, for such assets, which are comprised principally of net operating loss carryforwards, research and development credits and stock based compensation.

Included in the net operating loss carryforwards are stock option deductions of approximately $125.0 million. The benefits of these stock option deductions approximate $47.8 million. As of July 31, 2014, the Company had net operating loss carryforwards of approximately $7.1 million related to the exercise of stock options subsequent to the adoption of fair value accounting. This amount represents the excess benefit and has not been included in the gross deferred tax asset reflected for net operating losses.

As of July 31, 2014, the total amount of unrecognized tax benefit is $1.79 million. If recognized, the entire amount would impact the Company’s effective tax rate.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):


	2014			2013
Beginning balance .	$	1,742		$	1,673
Increase for current year .		83			99
Reductions related to expiration of statute of limitations .		(39	)		(30	)

Ending balance	$	1,786		$	1,742

As of July 31, 2014 and July 31, 2013, the total amount of accrued interest and penalties related to uncertain tax positions is $0.6 million and $0.53 million, respectively. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for federal, international, and state income taxes. This liability is subject to change, perhaps materially. It is reasonably possible this liability will be reduced between $0.2 million and $0.4 million in fiscal year 2015.