16. Income Taxes

The income tax expense is as follows:

	Years Ended March 31,
	2017			2016			2015
Current tax expense
Federal	$	9,451,000		$	12,400,000		$	1,523,000
State		318,000			1,995,000			1,100,000
Foreign		1,455,000			803,000			527,000
Total current tax expense		11,224,000			15,198,000			3,150,000
Deferred tax expense (benefit)
Federal		4,291,000			(2,929,000	)		5,553,000
State		2,174,000			(757,000	)		93,000
Foreign		(384,000	)		(33,000	)		272,000
Total deferred tax expense (benefit)		6,081,000			(3,719,000	)		5,918,000
Total income tax expense	$	17,305,000		$	11,479,000		$	9,068,000

Deferred income taxes consist of the following at March 31:

	2017			2016
Assets
Accounts receivable valuation	$	4,697,000		$	6,438,000
Allowance for customer incentives		2,894,000			769,000
Inventory obsolescence reserve		1,608,000			1,431,000
Stock options		1,971,000			1,714,000
Intangibles, net		339,000			380,000
Estimate for returns		3,191,000			7,938,000
Accrued compensation		1,785,000			1,485,000
Net operating losses		834,000			2,070,000
Tax credits		-			1,660,000
Other		2,065,000			2,583,000
Total deferred tax assets	$	19,384,000		$	26,468,000
Liabilities
Property and equipment, net		(1,605,000	)		(1,119,000	)
Other		(4,413,000	)		(6,277,000	)
Total deferred tax liabilities	$	(6,018,000	)	$	(7,396,000	)
Less valuation allowance	$	-		$	-
Net deferred tax assets	$	13,366,000		$	19,072,000
Net long-term deferred income tax liability		(180,000	)		(196,000	)
Net long-term deferred income tax asset		13,546,000			19,268,000
Total	$	13,366,000		$	19,072,000

At March 31, 2017, the Company had state net operating loss carryforwards of $6,334,000. The net operating loss carryforwards expire between fiscal years 2021 and 2033.

Realization of the Company's deferred tax assets is dependent upon the Company’s ability to generate sufficient taxable income. Management reviews the Company's deferred tax assets on a jurisdiction by jurisdiction basis to determine whether it is more likely than not that the deferred tax assets will be realized. Management believes that it is more likely than not that future taxable income will be sufficient to realize the recorded deferred tax assets. In evaluating this ability, management considers long-term agreements with the Company’s major customers and the Company also periodically compares its forecasts to actual results. Even though there can be no assurance that the forecasted results will be achieved, the history of income in all other jurisdictions provides sufficient positive evidence that no valuation allowance is needed.

For the years ended March 31, 2017, 2016, and 2015, the primary components of the Company’s income tax expense were (i) the current liability due to federal, state and foreign income taxes, (ii) foreign income taxed at rates that are different from the federal statutory rate, (iii) non-deductible expenses in connection with the fair value adjustments on the warrants, (iv) impact of the non-deductible executive compensation under Internal Revenue Code Section 162(m), (v) the impact of uncertain tax positions, and (vi) the change in the blended state rate. In addition, the Company’s income tax expense for the year ended March 31, 2017 was positively impacted by $748,000 of excess tax benefits as a result of the early adoption of the FASB’s new guidance on share-based compensation (see Note 2).

The difference between the income tax expense at the federal statutory rate and the Company’s effective tax rate is as follows:

	Years Ended March 31,
	2017			2016			2015

Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State income tax rate, net of federal benefit		2.2	%		4.0	%		2.2	%
Change in deferred tax rate		-	%		-	%		(0.2	)%
Excess tax benefit from stock compensation		(1.4	)%		-	%		-	%
Foreign income taxed at different rates		(0.7	)%		(0.8	)%		(0.9	)%
Warrants		(2.4	)%		8.2	%		0.8	%
Non-deductible executive compensation		0.8	%		2.2	%		3.4	%
Uncertain Tax Positions		(0.2	)%		0.4	%		2.5	%
Other income tax		(1.8	)%		3.1	%		1.4	%
		31.5	%		52.1	%		44.2	%

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions with varying statutes of limitations. At March 31, 2017, the Company is not under examination in any jurisdiction and the years ended March 31, 2017, 2016, and 2015 remain subject to examination. The Company believes no significant changes in the unrecognized tax benefits will occur within the next 12 months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Years Ended March 31,
	2017			2016			2015
Balance at beginning of period	$	1,181,000		$	1,117,000		$	540,000
Additions based on tax positions related to the current year		141,000			57,000			359,000
Additions for tax positions of prior year		106,000			217,000			336,000
Reductions for tax positions of prior year		-			(210,000	)		(118,000	)
Settlements		(336,000	)		-			-
Balance at end of period	$	1,092,000		$	1,181,000		$	1,117,000

At March 31, 2017, 2016 and 2015, there are $840,000, $678,000 and $958,000 of unrecognized tax benefits that if recognized would affect the annual effective tax rate.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits as part of income tax expense. During the years ended March 31, 2017, 2016, and 2015, the Company recognized approximately $51,000, $34,000, and $(56,000) in interest and penalties. The Company had approximately $141,000 and $90,000 for the payment of interest and penalties accrued at March 31, 2017 and 2016, respectively.