Note 7: Income Taxes

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

	Year Ended December 31,

	2013		2012			2011
Current portion:
Federal	$	—	$	(5	)	$	247
State		2		3			3
Foreign		69		112			38


	$	71	$	110		$	288

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company's deferred tax assets and liabilities were as follows (in thousands):

	December 31,

	2013			2012
Deferred tax assets:
Federal and state loss carryforwards	$	39,455		$	30,977
Reserves, accruals and other		372			341
Depreciation and amortization		1,797			1,991
Deferred stock-based compensation		3,793			3,319
Research and development credit carryforwards		9,512			7,476
Foreign tax and other credits		1,326			1,326


Total deferred tax assets		56,255			45,430
Deferred tax liabilities:
Acquired intangible assets and other		1,618			1,652
Less: Valuation allowance		(54,637	)		(43,778	)


Net deferred tax assets	$	—		$	—

The valuation allowance increased by $10.9 million and $11.4 million for the years ended December 31, 2013 and December 31, 2012, respectively. The valuation allowance at December 31, 2013 includes $1.8 million related to stock option deductions incurred prior to January 1, 2006, the benefit of which will be credited to additional paid-in capital if they become realized.

As of December 31, 2013, the Company had net operating loss carryforwards of approximately $103.6 million for federal income tax purposes and approximately $94.3 million for state income tax purposes. These losses are available to reduce future taxable income and expire at various times from 2014 through 2033. Approximately $5.6 million of federal net operating loss carryforwards and $4.8 million of state net operating loss carryforwards are related to excess tax benefits from stock-based compensation and will be charged to additional paid-in capital when realized.

The Company also had federal research and development tax credit carryforwards of approximately $6.3 million, which will begin expiring in 2018, and California research and development credits of approximately $5.2 million, which do not have an expiration date. The Company had foreign tax credits available for federal income tax purposes of approximately $1.1 million which will begin to expire in 2014.

The Company considers its undistributed earnings of its foreign subsidiary permanently reinvested in foreign operations and has not provided for U.S. income taxes on such earnings. As of December 31, 2013 the Company's unremitted earnings from its foreign subsidiary was $0.7 million. The determination of the unrecognized deferred U.S. income tax liability, if any, is not practicable.

Utilization of the Company's net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration or elimination of the net operating loss and tax credit carryforwards before utilization. Management does not believe it is likely that utilization will in fact be significantly limited due to ownership change limitation provisions.

A reconciliation of income taxes provided at the federal statutory rate (35%) to actual income tax provision (benefit) follows (in thousands):

	Year Ended December 31,

	2013			2012			2011
Income tax benefit computed at U.S. statutory rate	$	(8,653	)	$	(9,626	)	$	4,040
Federal alternative minimum tax		—			—			247
State income tax (net of federal benefit)		2			2			2
Foreign income tax at rate different from U.S. statutory rate		(11	)		(13	)		(9	)
Research and development credits		(1,196	)		(691	)		(1,254	)
Foreign tax credit		—			—			(17	)
Stock-based compensation		91			252			292
Amortization of intangible assets		(100	)		(100	)		(657	)
Valuation allowance changes affecting tax provision		9,915			10,526			(2,363	)
Other		23			(240	)		7


Income tax provision	$	71		$	110		$	288

The domestic and foreign components of income (loss) before income tax provision were as follows (in thousands):

	Year Ended December 31,

	2013			2012			2011
U.S.	$	(24,906	)	$	(27,737	)	$	11,363
Non-U.S.		183			233			181


	$	(24,723	)	$	(27,504	)	$	11,544