Income Taxes

Income (loss) before income taxes from continuing operations consisted of the following (dollars in thousands):



	Year Ended March 31,
	2015			2014			2013
United States	$	(5,940	)	$	(9,641	)	$	(25,827	)
Non-United States	152			306			(322		)
	$	(5,788	)	$	(9,335	)	$	(26,149	)

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



	Year Ended March 31,
	2015			2014			2013
Current tax provision (benefit):
Federal	$	(76	)	$	(200	)	$	—
State	22			(291		)	(10		)
Foreign	338			376			208
	284			(115		)	198
Deferred tax provision (benefit):
Federal	(545		)	(1,437		)	(825		)
State	(178		)	(515		)	(355		)
Foreign	15			(116		)	2
	(708		)	(2,068		)	(1,178		)
	$	(424	)	$	(2,183	)	$	(980	)

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



	Year Ended March 31,
	2015			2014			2013
Tax benefit computed at statutory rates	$	(1,966	)	$	(3,174	)	$	(9,046	)
State taxes, net of federal benefit	(334		)	(256		)	(2,030		)
Federal and state tax credits	(1,017		)	(2,854		)	(454		)
Non-deductible expenses	312			1,192			133
Tax exempt income	—			(31		)	(56		)
Unrecognized tax benefits	64			(193		)	83
Stock-based compensation	77			(44		)	(2		)
Meals and entertainment	94			79			71
Foreign tax rate differences	(53		)	(66		)	(77		)
Change in valuation allowance	2,412			3,062			10,104
Adjustment to deferred income tax rate	11			63			58
Other	(24		)	39			236
	$	(424	)	$	(2,183	)	$	(980	)

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



	March 31,
	2015			2014
Current deferred taxes:
Accrued expense	$	180		$	230
Prepaid expenses	(102		)	(91		)
Other current	222			105
Total current deferred taxes	300			244
Valuation allowance - current	(240		)	(200		)
Net current deferred taxes	60			44
Non-current deferred taxes:
Depreciation and amortization	(2,715		)	(1,456		)
Deferred rent	954			978
Accelerated research and experimentation expenditures	(6,819		)	(5,400		)
Stock-based compensation	8,804			8,105
Net operating and capital loss carryforwards	12,034			10,209
Federal and state tax credits	4,588			3,705
Other	56			98
Total non-current deferred taxes	16,902			16,239
Valuation allowance	(19,130		)	(16,998		)
Net non-current deferred taxes	(2,228		)	(759		)
Net deferred taxes	$	(2,168	)	$	(715	)

As a result of allocations to Discontinued Operations, we recorded a benefit of $2.1 million in continuing operations offsetting tax expense recorded in Discontinued Operations. Without this benefit, the provision would have consisted primarily of the expense for deferred taxes related to indefinite-lived intangible assets for which no future realization can be expected. The remaining provision would have been substantially offset by net operating losses and the valuation allowance on deferred tax assets.

Total gross deferred tax assets were approximately $26.8 million and $23.4 million at March 31, 2015 and 2014, respectively, and total deferred tax liabilities were approximately $9.6 million and $6.9 million, respectively. The increase to our valuation allowance was $2.2 million, $3.1 million and $10.1 million in Fiscal 2015, 2014 and 2013, respectively.

As of March 31, 2015 and 2014, we had federal net operating loss (“NOL”) carryforwards totaling approximately $59.5 million and $36.5 million, respectively, all of which have been offset by a valuation allowance. Upon utilization, a benefit of $27.5 million will be recorded in our Consolidated Statements of Operations and the remainder will be recorded in stockholders’ equity. The federal NOL carryforwards expire in Fiscal 2031 through 2035.

As of March 31, 2015 and 2014, we had gross state, county and local NOL carryforwards of approximately $159.3 million and $104.8 million, respectively, all of which have been offset by a valuation allowance. To clarify, the state gross NOL carryforwards consist of $64.5 million for the State of Oregon, $42.6 million for Multnomah County, $42.6 million for the City of Portland, and $9.6 million for all other jurisdictions. If utilized, a benefit of $1.8 million would be recorded in our Consolidated Statements of Operations and the remainder would be recorded in stockholders’ equity. The state NOL carryforwards expire in Fiscal 2016 through 2035.

Pursuant to Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, (“the Internal Revenue Code”), utilization of NOLs and credit carryforwards may be subject to an annual limitation due to future ownership change limitations provided by the Internal Revenue Code and similar state provisions. The tax benefits related to future utilization of federal and state NOLs and tax credit carryforwards may be limited or lost if cumulative changes in ownership exceed 50% within any three-year period. During Fiscal 2014, we acquired the stock of iTVX, an entity with net operating loss carryforwards. While the losses of iTVX will be subject to Section 382 and 383, it is anticipated that we will be able to utilize substantially all of iTVX’s federal and state NOLs and tax credit carryforwards.

As of March 31, 2015 and 2014, we had foreign NOL carryforwards totaling approximately $0.8 million and $2.4 million, respectively. Of these amounts, we reserved approximately $0.8 million and $2.3 million in Fiscal 2015 and 2014, respectively. Upon utilization, the NOL benefit will be recorded in our Consolidated Statements of Operations. A portion of the foreign NOL carryforwards expire in Fiscal 2017 through 2023, while the remainder carries forward indefinitely.

As of March 31, 2015 and 2014, we had federal research credit carryforwards totaling approximately $2.6 million and $2.0 million, respectively, all of which have been offset by a valuation allowance. Upon utilization, $2.0 million of the March 31, 2015 federal research credit carryforward and $1.3 million of the March 31, 2014 federal research credit carryforward will be recorded in our Consolidated Statements of Operations. The federal research credit carryforwards expire in Fiscal 2029 through 2035.

As of March 31, 2015 and 2014, we had state research credit carryforwards of approximately $0.4 million and $0.4 million, respectively, all of which have been offset by a valuation allowance. Upon utilization, $0.2 million of the March 31, 2015 state research credit carryforward and $0.2 million of the March 31, 2014 state research credit carryforward will be recorded in our Consolidated Statements of Operations. The state research credit carryforwards expire in Fiscal 2016 through 2020. Additionally, as of March 31, 2015 and 2014, we had $4.2 million and $3.7 million, respectively, in other state credit carryforwards, all of which have been offset by a valuation allowance and all of which will be recorded in our Consolidated Statement of Operations upon utilization. These state credit carryforwards expire in Fiscal 2017 through 2020.

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, 2015, based on these assessments, considerations and the lack of expected taxable income in the near term in the United States, France, Australia, China 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. In the United States, the valuation allowance is net of deferred tax liabilities related to indefinite-lived intangible assets for which no future realization can be expected. As of March 31, 2015 and 2014, this deferred tax liability was $2.2 million and $0.8 million, respectively, primarily related to acquisitions made during Fiscal 2015.

As of March 31, 2015, no provision has been made for the United States, state or additional foreign income taxes on certain undistributed earnings of certain foreign subsidiaries which have been, or are intended to be, permanently reinvested outside of the United States. Generally, such amounts become subject to taxation upon remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.

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



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
Additions for tax positions taken in Fiscal 2014	131
Decrease for tax positions taken in prior fiscal years (payment of tax)	(12		)
Decreases for lapses in statutes of limitation	(229		)
Decreases for settlements with taxing authorities	(164		)
Balance at March 31, 2014	806
Additions for tax positions taken in Fiscal 2015	279
Decreases for lapses in statutes of limitation	(111		)
Balance at March 31, 2015	$	974

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 $57,000 and $60,000 at March 31, 2015 and 2014, respectively. Net interest and penalties recognized as a component of the tax provision in Fiscal 2015, 2014 and 2013 totaled approximately $(3,000), $(64,000) and $33,000, 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, 2013 to March 31, 2015 for the United States federal returns. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where NOLs or tax credits were generated and carried forward, and make adjustments up to the amount of the NOL or credit carryforward. The open tax years in all other jurisdictions range from March 31, 2006 to March 31, 2015. A potential reduction to the unrecognized tax benefits of approximately zero to $29,000, before interest, may occur in the next twelve months as a result of expiring statute of limitations periods.