5.	Income Taxes

The components of income tax expense for the years ended March 31 consist of the following:

	2014		2013		2012
Income tax provision:
Current:
U.S. and State	$	13,000	$	15,000	$	16,000
Foreign		45,000		31,000		35,000
Deferred:
Foreign		14,000		5,000		(3,000	)

Total income tax expense	$	72,000	$	51,000	$	48,000

Actual income tax expense differs from statutory federal income tax benefit for the years ended March 31 as follows:

	2014			2013			2012

Statutory federal income tax benefit	$	(1,799,000	)	$	(1,111,000	)	$	(1,429,000	)
State tax benefit, net of federal taxes		(125,000	)		(82,000	)		(91,000	)
Foreign tax		(39,000	)		(27,000	)		(35,000	)
Nondeductible expenses		122,000			111,000			75,000
Stock compensation tax shortfall		267,000			(155,000	)		-
Subpart F income		35,000			33,000			35,000
Undistributed foreign earnings		-			-			9,000
NOL expiration		307,000			-			-
Valuation allowance increase		1,007,000			1,035,000			1,210,000
Other		297,000			247,000			274,000

Total income tax expense	$	72,000		$	51,000		$	48,000

Deferred taxes at March 31 consist of the following:

	2014			2013
Deferred tax assets (liabilities):
Depreciation	$	126,000		$	88,000
Amortization		21,000			121,000
Pension liability		150,000			140,000
Stock based compensation		691,000			981,000
Other reserves and accruals		141,000			169,000
Undistributed foreign earnings		(345,000	)		(288,000	)
Foreign tax credits		68,000			68,000
Net operating losses		12,487,000			11,050,000

	$	13,339,000		$	12,329,000

Less valuation allowance		(13,189,000	)		(12,183,000	)

	$	150,000		$	146,000

At March 31, 2014, we had U.S. NOL carry forwards of approximately $36 million for U.S. income tax purposes, which expire in 2018 through 2033. U.S. net operating loss carry forwards cannot be used to offset taxable income in foreign jurisdictions. In addition, future utilization of NOL carry forwards is subject to certain limitations under Section 382 of the Internal Revenue Code. This section generally relates to a 50 percent change in ownership of a company over a three-year period. We believe that the issuance of our common stock in the December of 2006 follow-on public offering resulted in an "ownership change" under Section 382. Accordingly, our ability to use NOL tax attributes generated prior to December 2006 is limited to approximately $750,000 per year. Additionally, we believe there was an ownership change in December of 2012. Our ability to use NOL tax attributes generated after December 2006 and before December 2012 is limited to approximately $2,000,000 per year.

Certain stock option exercises resulted in tax deductions in excess of previously recorded tax benefits. Our NOL carry forwards of $36 million referenced above include approximately $1.8 million of income tax deductions in excess of previously recorded tax benefits. Although these additional tax deductions are reflected in NOL carry forwards referenced above, the related tax benefit will not be recognized until the deductions reduce taxes payable. Accordingly, since the tax benefit does not reduce our current taxes payable in 2014, these tax benefits are not reflected in our deferred tax assets presented above. The tax benefit of these excess deductions will be reflected as a credit to additional paid-in-capital when and if recognized.

We provide for a valuation allowance when it is more likely than not that we will not realize a portion of the deferred tax assets. We have established a valuation allowance for U.S. and certain foreign deferred tax assets due to the uncertainty that enough taxable income will be generated in those taxing jurisdictions to utilize the assets. Therefore, we have not reflected any benefit of such deferred tax assets in the accompanying financial statements. The deferred tax asset increased by $1,010,227 and $1,058,315, respectively, in fiscal 2014 and 2013. The related valuation allowance increased by $1,006,586 and $1,035,135, respectively, in fiscal 2014 and 2013.

We reviewed all income tax positions taken or that we expect to be taken for all open years and determined that our income tax positions are appropriately stated and supported for all open years.

Under our accounting policies, we recognize interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense. As of March 31, 2014 and 2013, we recorded no accrued interest or penalties related to uncertain tax positions.

We have provided for U.S. deferred income taxes as of March 31, 2014 and 2013 for the undistributed earnings from our non-U.S. subsidiaries.

The fiscal tax years 2010 through 2014 remain open to examination by the Internal Revenue Service and various state taxing jurisdictions to which we are subject. In addition, we are subject to examination by certain foreign taxing authorities for which the fiscal years 2011 through 2014 remain open for examination.