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INCOME TAXES - Note 9 | 12 Months Ended
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Mar. 31, 2016
Notes to Financial Statements |
INCOME TAXES - Note 9 | 9. INCOME TAXES For the years ended March 31, 2016, 2015 and 2014, the Company recorded a (benefit) provision for income taxes of approximately ($0.8) million, $2.8 million and $2.2 million, respectively. The provision in each year was attributable to federal and state current and deferred taxes. The components of the consolidated (benefit) provision for income taxes for fiscal 2016, 2015 and 2014 consisted of the following (in thousands):
|  |  | March 31,
Current: |  |  | 2016 |  |  | 2015 |  |  | 2014
Federal |  | $ | 97 |  | $ | 92 |  | $ | -
State |  |  | 551 |  |  | 457 |  |  | 276
Foreign |  |  | 71 |  |  | 1 |  |  | -
Total current tax provision |  |  | 719 |  |  | 550 |  |  | 276
Deferred |  |  |  |  |  |  |  |  |
Federal |  | $ | 95 |  | $ | 2,602 |  | $ | 1,578
State |  |  | (854) |  |  | (363) |  |  | 365
Foreign |  |  | (807) |  |  | - |  |  | -
Total deferred tax (benefit) provision |  |  | (1,566) |  |  | 2,239 |  |  | 1,943
Income tax (benefit) provision |  | $ | (847) |  | $ | 2,789 |  | $ | 2,219
The Company's income (loss) from continuing operations before income taxes included $6.9 million, $3.5 million and $0.8 million of foreign subsidiary loss for the fiscal years ended March 31, 2016, 2015 and 2014, respectively. The Company is permanently reinvesting the earnings of its profitable foreign subsidiaries. The company intends to reinvest these profits in expansion of overseas operations. If the Company were to remit these earnings, the tax impact would be immaterial. Deferred tax assets were comprised of the following (in thousands):
|  |  | March 31,
Current deferred tax assets |  |  | 2016 |  |  | 2015
Net operating loss carryforwards |  | $ | 2,739 |  | $ | 2,179
Inventory valuation |  |  | 14 |  |  | 14
Reserves and allowances |  |  | 2,740 |  |  | 2,394
Net current deferred tax assets |  |  | 5,493 |  |  | 4,587
Net operating loss carryforwards |  |  | 38,449 |  |  | 44,228
Research and development and other credit carryforwards |  |  | 7,106 |  |  | 5,414
Stock-based compensation |  |  | 5,577 |  |  | 3,164
Fixed assets and intangibles |  |  | (6,160) |  |  | (4,869)
Net non-current deferred tax assets |  |  | 44,972 |  |  | 47,937
Valuation allowance |  |  | (3,760) |  |  | (4,901)
Total |  | $ | 46,705 |  | $ | 47,623
As of March 31, 2016 and 2015, management assessed the realizability of deferred tax assets based on the available evidence, including a history of taxable income and estimates of future taxable income. At March 31, 2016, management evaluated the need for a valuation allowance and determined that a valuation allowance of approximately $3.8 million was needed. At March 31, 2015, management evaluated the need for a valuation allowance and determined that a valuation allowance of approximately $4.9 million was needed. The net change in the valuation allowance for the years ended March 31, 2015 and 2014 was a decrease of $1.1 million and an increase of $0.7 million, respectively. At March 31, 2016, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $137.9 million and $38.7 million, respectively, which expire at various dates between 2017 and 2036. The net operating loss carryforwards include approximately $40.7 million resulting from employee exercises of non-qualified stock options or disqualifying dispositions of incentive stock options, the tax benefits of which, when realized, will be accounted for as an addition to additional paid-in capital rather than as a reduction of the provision for income taxes. In addition, at March 31, 2016, the Company had research and development credit carryforwards for federal and California tax reporting purposes of approximately $4.5 million and $6.2 million, respectively. The federal income tax credit carryforwards will expire at various dates between 2021 and 2036, while the California income tax credits will carry forward indefinitely. A reconciliation of the Company's provision (benefit) for income taxes to the amounts computed using the statutory U.S. federal income tax rate of 34% is as follows (in thousands):
|  |  | Years Ended March 31,
|  |  | 2016 |  |  | 2015 |  |  | 2014
Tax provision at statutory rate |  | $ | (2,029) |  | $ | 1,599 |  | $ | 1,285
State income taxes before valuation allowance, |  |  |  |  |  |  |  |  |
net of federal effect |  |  | 9 |  |  | 269 |  |  | 196
Foreign tax rate differential |  |  | (769) |  |  | - |  |  | -
Research and development credits |  |  | (1,253) |  |  | (725) |  |  | (1,534)
Change in valuation allowance |  |  | (1,555) |  |  | (1,480) |  |  | 1,264
Compensation/option differences |  |  | (471) |  |  | (331) |  |  | (264)
Non-deductible compensation |  |  | 944 |  |  | 746 |  |  | 605
Acquisition costs |  |  | 230 |  |  | - |  |  | 230
Expiring CA NOLs |  |  | 1,626 |  |  | 1,484 |  |  | 240
Foreign loss not benefited |  |  | 2,342 |  |  | 1,192 |  |  | 271
Other |  |  | 79 |  |  | 35 |  |  | (74)
Total income tax provision |  | $ | (847) |  | $ | 2,789 |  | $ | 2,219
The Company recognizes the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|  |  | Unrecognized Tax Benefits
|  |  | 2016 |  |  | 2015 |  |  | 2014
Balance at beginning of year |  | $ | 2,420 |  | $ | 2,165 |  | $ | 3,024
Gross increases - tax position in prior period |  |  | 82 |  |  | 27 |  |  | -
Gross decreases - tax position in prior period |  |  | - |  |  | - |  |  | (1,081)
Gross increases - tax positions related to the current year |  |  | 379 |  |  | 228 |  |  | 222
Balance at end of year |  | $ | 2,881 |  | $ | 2,420 |  | $ | 2,165
At March 31, 2016, the company had a liability for unrecognized tax benefits of $2.9 million, all of which, if recognized, would decrease the company's effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. The Company has not been under examination by income tax authorities in federal, state or other foreign jurisdictions. The 1997 through fiscal 2016 tax years generally remain subject to examination by federal and most state tax authorities. The Company's policy for recording interest and penalties associated with tax examinations is to record such items as a component of operating expense income before taxes. During the fiscal year ended March 31, 2016, 2015 and 2014, the Company did not recognize any interest or penalties related to unrecognized tax benefits. Utilization of the Company's net operating loss and tax credit carryforwards can become subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of 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. The Company has performed an analysis of its changes in ownership under Section 382 of the Internal Revenue Code. The Company currently believes that the Section 382 limitation will not limit utilization of the carryforwards prior to their expiration, with the exception of certain acquired loss and tax credit carryforwards of Contactual, Inc.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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