Income Taxes

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



	Year Ended March 31,
	2012			2011			2010
United States	$	(4,303	)	$	(1,900	)	$	(34	)
Non-United States	(1,128		)	(108		)	261
	$	(5,431	)	$	(2,008	)	$	227

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



	Year Ended March 31,
	2012			2011			2010
Current tax provision (benefit):
Federal	$	(563	)	$	157		$	(437	)
State	45			88			130
Foreign	158			280			205
	(360		)	525			(102		)
Deferred tax provision (benefit):
Federal	876			(1,142		)	(195		)
State	241			(323		)	(54		)
Foreign	238			(301		)	2
	1,355			(1,766		)	(247		)
	$	995		$	(1,241	)	$	(349	)

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



	Year Ended March 31,
	2012			2011			2010
Provision (benefit) computed at statutory rates	$	(1,851	)	$	(682	)	$	77
State taxes, net of federal benefit	(419		)	(168		)	19
Research credits	(480		)	(786		)	(203		)
Non-deductible acquisition expenditures	130			113			164
Tax exempt income	(158		)	(154		)	(196		)
Unrecognized tax benefits	(315		)	337			(255		)
Stock-based compensation	(26		)	(22		)	(42		)
Meals and entertainment	70			66			50
Foreign tax rate differences	(53		)	(77		)	(113		)
Change in valuation allowance	4,002			150			(68		)
Expiration of carryforwards	—			—			68
Purchase accounting adjustment	—			(42		)	—
Adjustment to deferred income tax rate	39			—			18
Other	56			24			132
	$	995		$	(1,241	)	$	(349	)

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



	March 31,
	2012			2011
Current deferred taxes:
Accrued expense	$	225		$	195
Mark to market adjustment on investments	(53		)	17
Prepaid expenses	(68		)	(60		)
Other current	195			—
Total current deferred taxes	299			152
Valuation allowance - current	(251		)	—
Net current deferred taxes	48			152
Non-current deferred taxes:
Depreciation and amortization	69			334
Deferred rent	589			175
Accelerated research and experimentation expenditures	(3,517		)	(3,109		)
Stock-based compensation	5,167			2,937
Net operating and capital loss carryforwards	710			421
Federal and state tax credits	618			553
Other	124			93
Total non-current deferred taxes	3,760			1,404
Valuation allowance	(3,839		)	(162		)
Net non-current deferred taxes	(79		)	1,242
Net deferred taxes	$	(31	)	$	1,394

Total gross deferred tax assets were approximately $7.7 million and $4.7 million at March 31, 2012 and 2011, respectively, and total deferred tax liabilities were approximately $3.6 million and $3.2 million, respectively. The increase (decrease) to our valuation allowance was $3.9 million, $150,000 and $(68,000) in Fiscal 2012, 2011 and 2010, respectively.

As of March 31, 2012 and 2011, tax benefits (charges) of approximately $(53,000) and $17,000, respectively, were recorded in other comprehensive income (loss) related to the unrealized (gains) losses on investments classified as available for sale.

As of March 31, 2012 and 2011, we had federal net operating loss carryforwards totaling approximately $5.3 million and $5.3 million, respectively. Upon utilization, the net operating loss benefit will be recorded in stockholders’ equity. The federal net operating loss carryforwards expire in Fiscal 2031 through 2032.

As of March 31, 2012 and 2011, we had gross state, county and local net operating loss carryforwards of approximately $30.6 million and $30.3 million, respectively, of which approximately $30.6 million and $0.3 million, respectively, have been offset by a valuation allowance. If utilized, the benefit of $0.3 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 2013 through 2032.

As of March 31, 2012 and 2011, we had foreign net operating loss carryforwards totaling approximately $2.1 million and $1.3 million, respectively. Of these amounts, we reserved approximately $2.0 million and $0.5 million in Fiscal 2012 and 2011, 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 2022, while the remainder carries forward indefinitely.

As of March 31, 2012 and 2011, we had federal research credit carryforwards totaling approximately $1.4 million and $1.0 million, respectively. Upon utilization, $0.6 million of the March 31, 2012 federal research credit carryforward and $0.4 million of the March 31, 2011 federal research credit carryforward will be recorded in our Consolidated Statements of Operations. The remainder will be recorded in stockholders’ equity. The federal research credit carryforwards expire in Fiscal 2029 through 2032.

As of March 31, 2012 and 2011, we had state research credit carryforwards of approximately $0.5 million and $0.3 million, respectively. Upon utilization, $0.3 million of the March 31, 2012 state research credit carryforward and $0.2 million of the March 31, 2012 state research credit carryforward will be recorded in our Consolidated Statements of Operations. The remainder will be recorded in stockholders’ equity. The state research credit carryforwards expire in Fiscal 2015 through 2017.

As of March 31, 2012 and 2011, we had federal alternative minimum tax credit carryforwards totaling approximately $0.1 million and $0.1 million, respectively. Upon utilization, the alternative minimum tax credit benefit will be recorded in our Consolidated Statements of Operations. The federal alternative minimum tax credit carries forward indefinitely.

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, 2012, based on these assessments, considerations and the lack of expected operating 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, 2012, no provision has been made for the United States, state or additional foreign income taxes related to approximately $2.4 million of undistributed earnings of foreign subsidiaries which have been, or are intended to be, permanently reinvested outside of the United States. It is not practicable to determine the United States federal income tax liability, if any, which would be payable if such earnings were not permanently reinvested outside of the United States. In the event the foreign subsidiaries repatriate these earnings, the earnings may be subject to United States federal, state and foreign income taxes.

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



Balance at March 31, 2009	$	1,206
Additions for tax positions taken in Fiscal 2010	32
Additions for tax positions taken in prior fiscal years	—
Decrease for tax positions taken in prior fiscal years (payment of tax)	—
Decreases for lapses in statutes of limitation	(280		)
Decreases for settlements with taxing authorities	—
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
Decrease for tax positions taken in prior fiscal years (payment of tax)	—
Decreases for lapses in statutes of limitation	—
Decreases for settlements with taxing authorities	—
Balance at March 31, 2011	1,275
Additions for tax positions taken in Fiscal 2012	279
Additions for tax positions taken in prior fiscal years	—
Decrease for tax positions taken in prior fiscal years (payment of tax)	—
Decreases for lapses in statutes of limitation	(551		)
Decreases for settlements with taxing authorities	—
Balance at March 31, 2012	$	1,003

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 $91,000 and $105,000 at March 31, 2012 and 2011, respectively. Net interest and penalties recognized as a component of the tax provision in Fiscal 2012, 2011 and 2010 totaled approximately $14,000, $52,000 and $17,000, 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, 2012 for the United States federal return. The open tax years in all other jurisdictions range from March 31, 2001 to March 31, 2012. A potential reduction to the unrecognized tax benefits of approximately zero to $75,000, before interest, may occur in the next twelve months as a result of expiring statute of limitations periods.