NOTE 8 – INCOME TAXES

The Company's income before income taxes consists of the following (in thousands):

	Year Ended February 28,
	2015		2014		2013
Domestic	$	24,684	$	17,185	$	14,811
Foreign		116		726		637
Total income before income taxes	$	24,800	$	17,911	$	15,448

The income tax benefit (provision) consists of the following (in thousands):

	Year Ended February 28,
	2015			2014			2013
Current:
Federal	$	-		$	-		$	-
State		(325	)		(42	)		(9	)
Foreign		(49	)		(45	)		(44	)
Total current		(374	)		(87	)		(53	)

Deferred:
Federal		(8,134	)		(6,346	)		21,465
State		216			325			7,766
Total deferred		(7,918	)		(6,021	)		29,231

Total income tax benefit (provision)	$	(8,292	)	$	(6,108	)	$	29,178

Differences between the income tax benefit (provision) reported in the consolidated statements of income and the income tax amount computed using the statutory U.S. federal income tax rate are as follows (in thousands):

	Year Ended February 28,
	2015			2014			2013
Income tax provision at U.S. statutory federal rate of 35%	$	(8,680	)	$	(6,269	)	$	(5,407	)
State income tax provision, net of federal income tax effect		(867	)		(770	)		(570	)
Foreign taxes		41			209			178
Valuation allowance reductions (increases)		250			(865	)		35,148
Research and development tax credits		1,556			1,126			721
Other, net		(592	)		461			(892	)
Total income tax benefit (provision)	$	(8,292	)	$	(6,108	)	$	29,178

The components of net deferred income tax assets for U.S. income tax purposes are as follows (in thousands):

	February 28,
	2015			2014
Net operating loss carryforwards	$	20,318		$	31,546
Depreciation, amortization and impairments		1,785			1,332
Research and development credits		8,738			7,238
Stock-based compensation		1,869			1,639
Capital loss carryforward		-			840
Other tax credits		635			551
Inventory reserve		484			576
Warranty reserve		697			593
Payroll and employee benefit accruals		1,797			1,185
Allowance for doubtful accounts		258			298
Other accrued liabilities		2,158			1,568
Other, net		242			233
Gross deferred tax assets		38,981			47,599
Valuation allowance		(4,159	)		(4,849	)
Net deferred tax assets		34,822			42,750
Less current portion		11,367			7,619
Non-current portion	$	23,455		$	35,131

The Company also has deferred tax assets for Canadian income tax purposes amounting to $4.3 million at February 28, 2015 which relate primarily to research and development expenses and non-capital loss carryforwards. The Company has provided a 100% valuation allowance against these Canadian deferred tax assets.

During fiscal 2013, the Company reversed a portion of its deferred tax asset valuation allowance corresponding to the amount of net operating loss carryforwards (NOLs) utilized to offset taxable income in that year. In addition, pursuant to the fiscal 2013 evaluation of the future utilizability of deferred tax assets, the Company reversed a substantial portion of the remaining valuation allowance at the end of fiscal 2013, resulting in an income tax benefit of $29.2 million for the year. The Company believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets.

At February 28, 2015, the Company had NOLs of approximately $74 million and $79 million for federal and state purposes, respectively, expiring at various dates through fiscal 2033. If certain substantial changes in the Company's ownership were to occur, there could be an annual limitation on the amount of the NOL carryforwards that can be utilized.

As of February 28, 2015, the Company had research and development (R&D) tax credit carryforwards of $6.1 million and $5.6 million for federal and state income tax purposes, respectively. The federal R&D credits expire at various dates through 2035. A substantial portion of the state R&D tax credits have no expiration date.

As described further in Note 9, the Company has tax deductions on exercised stock options and vested restricted stock awards that exceed stock compensation expense amounts recognized for financial reporting purposes. These excess tax deductions, which amounted to $6.5 million and $12.8 million in fiscal 2015 and 2014, respectively, reduce current taxable income and thereby prolong the tax shelter period of the NOL and R&D tax credit carryforwards referred to above.

In 2007, the Company adopted FASB ASC Topic 740, “Income Taxes,” which clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. Management determined based on its evaluation of the Company's income tax positions that it has one uncertain tax position relating to federal R&D tax credits of $1.0 million at February 28, 2015 for which the Company has not yet recognized an income tax benefit for financial reporting purposes.

Activity in the amount of unrecognized tax benefits for uncertain tax positions during the past three years is as follows (in thousands):

Balance at February 28, 2012	$	1,091
Decrease in fiscal 2013		(2	)
Balance at February 28, 2013		1,089
Decrease in fiscal 2014		(60	)
Balance at February 28, 2014	$	1,029
Decrease in fiscal 2015		-
Balance at February 28, 2015	$	1,029

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. states, Canada, United Kingdom, and New Zealand. Income tax returns filed for fiscal years 2010 and earlier are not subject to examination by U.S. federal and state tax authorities. Certain income tax returns for fiscal years 2011 through 2014 remain open to examination by U.S. federal and state tax authorities. Income tax returns for fiscal years 2011 through 2014 remain open to examination by tax authorities in Canada. The Company believes that it has made adequate provision for all income tax uncertainties pertaining to these open tax years.