Income Taxes

The following is a summary of the components of income tax expense applicable to loss before income taxes (in thousands):



	Year ended December 31,
	2013		2012		2011
Current:
Federal	—		—		—
State	21		26		15
Foreign	21		98		45
	$	42	$	124	$	60
Deferred:
Federal	—		—		—
State	—		—		—
Foreign	—		—		—
	$	42	$	124	$	60

A reconciliation of the expected tax expense (benefit) to the actual tax expense is as follows (in thousands):



	Year ended December 31,
	2013			2012			2011
Expected tax benefit at statutory rate (35%)	$	1,510		$	(3,155	)	$	(4,083	)
State taxes, net of Federal effect	13			17			9
Foreign rate differential	(5,465		)	(2,416		)	(3,532		)
Valuation allowance	3,962			5,362			7,065
Stock-based compensation	136			402			518
Other	(114		)	(86		)	83
	$	42		$	124		$	60

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2013 and 2012 are as follows (in thousands):



	2013			2012
Deferred assets:
Net operating loss, capital loss, and tax credit carryforwards	$	552,010		$	526,575
Fixed assets and intangible assets	14,260			20,802
Inventory and other reserves	4,088			4,995
Other	131			128
Gross deferred tax assets	570,489			552,500
Less valuation allowance	(570,489		)	(552,500		)
Total net deferred tax assets	$	—		$	—

For the years ended December 31, 2013 and 2012, the net changes in the valuation allowance were an increase of $18.0 million and a decrease of $11.1 million, respectively. The Company recorded a full valuation allowance against the net deferred tax assets at December 31, 2013 and 2012 since it is more likely than not that the net deferred tax assets will not be realized due to the lack of previously paid taxes and anticipated taxable income.

As of December 31, 2013, the Company had net operating loss carryforwards for federal and California income tax purposes of approximately $1,432.6 million and $422.0 million, respectively, which are available to offset future taxable income, if any, in years through 2031. Approximately $3.6 million and $2.5 million net operating loss carryforwards for federal and California income tax purposes, respectively, are attributable to employee stock option deductions, the benefit from which will be allocated to paid-in-capital rather than current income when subsequently recognized. Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an ownership change for tax purposes, as defined in Section 382 of the Internal Revenue Code. As a result of such ownership changes, the Company’s ability to realize the potential future benefit of tax losses and tax credits that existed at the time of the ownership change will be significantly reduced. The Company’s deferred tax asset and related valuation allowance would be reduced as a result. The Company has not yet performed a Section 382 study to determine the amount of reduction, if any.

As of December 31, 2013, the Company also had research credit carryforwards for federal and state income tax purposes of approximately $22.4 million and $7.9 million, respectively, which are available to reduce future income taxes, if any, in years through 2031 and over an indefinite period, respectively. Additionally, the Company had alternative minimum tax credit carryforwards for federal income tax purposes of approximately $0.1 million which are available to reduce future income taxes, if any, over an indefinite period. The Company also had enterprise zone credit carryforwards for state income tax purposes of approximately $0.2 million which are available to reduce future state income taxes, if any, over an indefinite period.

The Company may have unrecognized tax benefits included in its deferred tax assets which are subject to a full valuation allowance as of December 31, 2013 and 2012. However, the Company has not yet performed a study to determine the amount of such unrecognized tax benefits.

Interest and penalties, to the extent accrued on unrecognized tax benefits in the future, will be included in tax expense.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The open tax years for the major jurisdictions are as follows:



• Federal	2010 – 2013
• California and Canada	2009 – 2013
• Brazil	2008 – 2013
• Germany	2010 – 2013
• United Kingdom	2009 – 2013

However, due to the fact the Company had net operating losses and credits carried forward in most jurisdictions, certain items attributable to technically closed years are still subject to adjustment by the relevant taxing authority through an adjustment to tax attributes carried forward to open years.

The Company estimates that its foreign income will generally be subject to taxation in the United States on a current basis and that its foreign subsidiaries and representative offices will therefore not have any material untaxed earnings subject to deferred taxes. In addition, to the extent the Company is deemed to have a sufficient connection to a particular taxing jurisdiction to enable that jurisdiction to tax the Company but the Company has not filed an income tax return in that jurisdiction for the year(s) at issue, the jurisdiction would typically be able to assert a tax liability for such years without limitation on the number of years it may examine.

The Company is not currently under examination for income taxes in any material jurisdiction.