NOTE 4—INCOME TAXES

Income (loss) before income taxes and income tax expense consists of the following:



	Year Ended March 31,
	2015		2014		2013
	(In thousands)
Income (loss) before income taxes:
U.S.	$	(6,910)	$	(6,388)	$	137
Foreign		1,257		912		3,747
	$	(5,653)	$	(5,476)	$	3,884
Current income tax expense (benefit):
U.S. federal	$	(619)	$	(1,782)	$	914
Foreign		(2)		113		26
State		(54)		(82)		(134)
		(675)		(1,751)		806
Deferred income tax expense (benefit):
U.S. federal		-		1,892		(529)
State		-		572		(239)
		-		2,464		(768)
Provision (benefit) for income tax	$	(675)	$	713	$	38

Income tax expense differs from the amount of income tax determined by applying the applicable U.S. statutory income tax rate to pre-tax income as follows:



	Year Ended March 31,
	2015		2014		2013
	(In thousands)
U.S. Federal taxes at statutory rate	$	(1,922)	$	(1,862)	$	1,321
State taxes, net of federal benefit		(39)		490		(276)
Stock-based compensation		447		392		601
Tax credits		(472)		(338)		(454)
Foreign tax rate differential		(916)		(650)		(1,099)
Tax exempt interest		(20)		(29)		(30)
Other		(35)		(72)		(25)
		(2,957)		(2,069)		38
Valuation allowance		2,282		2,782		-
	$	(675)	$	713	$	38

Deferred tax assets and deferred tax liabilities consist of the following:



	March 31,
	2015		2014
	(In thousands)
Deferred tax assets:
Deferred revenue	$	110	$	202
Tax credits		1,766		1,154
Net operating losses		1,165		141
Stock-based compensation		1,387		1,247
Property and equipment		193		-
Other reserves and accruals		1,407		1,020
Total deferred tax assets	$	6,028	$	3,764
Deferred tax liabilities:
Property and equipment	$	-	$	(58)
Unrecognized gains		(11)		(11)
Total deferred tax liabilities	$	(11)	$	(69)

Gross deferred tax assets	$	6,017	$	3,695
Valuation allowance		(6,017)		(3,695)
Net deferred tax assets	$	-	$	-

U.S. income taxes and withholding taxes have not been provided on a cumulative total of $39.5 million of undistributed earnings for certain non-U.S. subsidiaries. The Company currently intends to indefinitely reinvest these earnings in operations outside the United States. No provision has been made for taxes that might be payable upon remittance of such earnings, nor is it practicable to determine the amount of such potential liability.

The current portion of the Company's unrecognized tax benefits at March 31, 2015 and 2014 was $0 and $0, respectively. The long-term portion at March 31, 2015 and 2014 was $780,000 and $1,462,000, respectively, of which the timing of the resolution is uncertain. As of March 31, 2015, $1,277,000 of unrecognized tax benefits had been recorded as a reduction to net deferred tax assets. As of March 31, 2015, our net deferred tax assets of $6.0 million are subject to a full valuation allowance. It is possible, however, that some months or years may elapse before an uncertain position for which the Company has established a reserve is resolved. A reconciliation of unrecognized tax benefits is as follows:



	Year Ended March 31,
	2015		2014		2013
	(In thousands)
Unrecognized tax benefits, beginning of period	$	2,386	$	2,760	$	3,109
Additions based on tax positions related to current year		292		250		429
Additions based on tax positions related to prior years		-		13		85
Settlements during the current year		-		-		(231)
Lapses during the current year applicable to statutes of limitations		(696)		(637)		(632)
Unrecognized tax benefits, end of period	$	1,982	$	2,386	$	2,760

The unrecognized tax benefit balance as of March 31, 2015 of $1,982,000 would affect the Company's effective tax rate if recognized.

Management believes that it is reasonably possible that within the next twelve months the Company could have a reduction in uncertain tax benefits of up to $729,000, including interest and penalties, as a result of the lapse of statute of limitations.

The Company's policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes in the Consolidated Statements of Operations.

The Company is subject to taxation in the United States and various state and foreign jurisdictions. As of March 31, 2015, the Company maintains a full valuation allowance of $6.0 million for deferred tax assets that are not expected to be utilized in future years. Fiscal years 2012 through 2015 remain open to examination by the federal tax authorities and fiscal years 2010 through 2015 remain open to examination by California.