NOTE 5—INCOME TAXES

Loss before income taxes and income tax expense consists of the following:



	Year Ended March 31,
	2016		2015		2014
	(In thousands)
Loss before income taxes:
U.S.	$	(3,426)	$	(6,910)	$	(6,388)
Foreign		615		1,257		912
	$	(2,811)	$	(5,653)	$	(5,476)
Current income tax expense (benefit):
U.S. federal	$	(354)	$	(619)	$	(1,782)
Foreign		15		(2)		113
State		(289)		(54)		(82)
		(628)		(675)		(1,751)
Deferred income tax expense (benefit):
U.S. federal		(3)		-		1,892
Foreign		(10)		-		-
State		-		-		572
		(13)		-		2,464
Provision (benefit) for income tax	$	(641)	$	(675)	$	713

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,
	2016		2015		2014
	(In thousands)
U.S. Federal taxes at statutory rate	$	(956)	$	(1,922)	$	(1,862)
State taxes, net of federal benefit		(204)		(39)		490
Stock-based compensation		470		447		392
Tax credits		(539)		(472)		(338)
Foreign tax rate differential		(368)		(916)		(650)
Tax exempt interest		(9)		(20)		(29)
Other		6		(35)		(72)
		(1,600)		(2,957)		(2,069)
Valuation allowance		959		2,282		2,782
	$	(641)	$	(675)	$	713

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



	March 31,
	2016		2015
	(In thousands)
Deferred tax assets:
Deferred revenue	$	231	$	110
Tax credits		2,706		1,766
Net operating losses		1,356		1,165
Stock-based compensation		1,550		1,387
Property and equipment		297		193
Other reserves and accruals		1,175		1,407
Total deferred tax assets	$	7,315	$	6,028
Deferred tax liabilities:
Intangible assets	$	(856)	$	-
Unrecognized gains		(14)		(11)
Total deferred tax liabilities	$	(870)	$	(11)

Net deferred tax assets	$	6,445	$	6,017
Valuation allowance		(7,256)		(6,017)
Net deferred tax liability	$	(811)	$	-

U.S. income taxes and withholding taxes have not been provided on a cumulative total of $40.1 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 long-term portion of the Company's unrecognized tax benefits at March 31, 2016 and 2015 was $116,000 and $780,000, respectively, of which the timing of the resolution is uncertain. As of March 31, 2016, $1,943,000 of unrecognized tax benefits had been recorded as a reduction to net deferred tax assets. As of March 31, 2016, the Company’s net deferred tax assets of $6.4 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,
	2016		2015		2014
	(In thousands)
Unrecognized tax benefits, beginning of period	$	1,982	$	2,386	$	2,760
Additions based on tax positions related to current year		453		292		250
Additions based on tax positions related to prior years		183		-		13
Settlements during the current year		-		-		-
Lapses during the current year applicable to statutes of limitations		(563)		(696)		(637)
Unrecognized tax benefits, end of period	$	2,055	$	1,982	$	2,386

The unrecognized tax benefit balance as of March 31, 2016 of $112,000 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 $16,000, 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, 2016, the Company maintained a full valuation allowance of $7.3 million for deferred tax assets that are not expected to be utilized in future years. Fiscal years 2013 through 2016 remain open to examination by the federal tax authorities and fiscal years 2011 through 2016 remain open to examination by California.