10.Income Taxes

(Loss) income from our operations before income taxes for U.S. and foreign operations was as follows (in thousands):



	2016		2015		2014
U.S.	$	(5,828)	$	(2,668)	$	(2,124)
Foreign		(3,389)		1,833		5,126
Total	$	(9,217)	$	(835)	$	3,002

The income tax (provision) benefit reflected in the statement of income consists of the following (in thousands):



	2016		2015		2014
Current (provision) benefit:
U.S. Federal, State & Other	$	(116)	$	(19)	$	(102)
Foreign		(185)		204		(1,581)
Deferred taxes
U.S.		(11,349)		1,051		969
Foreign		(1,246)		(862)		139
Total (provision) benefit	$	(12,896)	$	374	$	(575)

The components of deferred taxes were as follows (in thousands):



	2016		2015		2014

Benefit of net operating losses	$	9,268	$	8,582	$	7,149
Tax credit carry-forwards		5,451		5,006		4,928
Deferred Revenue		1,434		1,665		1,351
Impaired Investment		1,060		1,012		1,012
Property and intangible assets		242		-		-
Other		3,029		574		411
Deferred tax asset		20,484		16,839		14,851
Valuation allowance		(19,453)		(3,104)		(3,103)
Total deferred tax assets		1,031		13,735		11,748
Deferred tax liabilities - basis difference and amortization		(1,631)		(1,798)		-
Net deferred taxes	$	(600)	$	11,937	$	11,748

Rate Reconciliation:
Provision at U.S. statutory rate		34.0%		34.0%		34.0%
Net effect of taxes on foreign activities		(5.9%)		(4.2%)		(10.0%)
Tax effect of U.S. permanent differences		2.6%		21.2%		(0.4%)
State taxes and other, net		(1.5%)		(0.4%)		(0.7%)
Adjustment related to prior years		3.8%		(5.9%)		0.3%
Valuation allowance		(172.9%)		0.0%		(4.0%)
Effective tax rate		(139.9%)		44.7%		19.2%

The amount of earnings retained for use by our foreign subsidiaries for which no tax provision has been made amounted to approximately $17.2 million as of June 30, 2016. We may be subject to U.S. income taxes and foreign withholding taxes if these earnings are distributed in the future. It is not practicable to estimate the amount of unrecognized deferred tax liability for the undistributed foreign earnings. At June 30, 2016, we had net operating loss carry-forwards for U.S. federal income tax purposes of $30.0 million that expire in the years 2022 through 2036 and tax credit carry-forwards of $5.4 million of which $5.2 million expire in the years 2018 through 2036. Included in the U.S. federal net operating loss carry-forward is $8.3 million from the exercise of employee stock options, the tax benefit of which, when recognized, will be accounted for as an increase to additional paid-in-capital rather than a reduction of the income tax provision.

Our deferred tax assets are substantially represented by the tax benefit of U.S. net operating losses “(NOL’s”), tax credit carry-forwards and the tax benefit of future deductions represented by timing differences for deferred revenue, inventory obsolescence, allowances for bad debts, warranty expenses and unrealized losses on investments. We assess the realizability of the NOL’s and tax credit carry-forwards based on a number of factors including our net operating history, the volatility of our earnings, our accuracy of forecasted earnings for future periods and the general business climate at the end of fiscal 2016. As of June 30, 2016, we have been in a three-year cumulative loss position, therefore, we have determined that it is not more likely than not that any of our deferred tax assets will be realized as benefits in the future. Accordingly, we have established a full valuation allowance against our U.S. net deferred tax assets. Additionally, we have established a full valuation allowance against our Germany and Brazil deferred tax assets, based on a similar analysis of our cumulative recent losses in these jurisdictions. The net change in the total valuation allowance for the fiscal years ended June 30, 2016, 2015 and 2014 was $16,349,000, $0, and $121,000, respectively. We also have a deferred tax liability related to the basis difference in the Coord3 intangible assets acquired.

On June 30, 2016 and 2015, we had $251,000 and $1,315,000 of unrecognized tax benefits that would affect the effective tax rate if recognized. Our policy is to classify interest and penalties related to unrecognized tax benefits as interest expense and income tax expense, respectively. As of June 30, 2016, there was no accrued interest or penalties related to uncertain tax positions recorded on our Consolidated Balance Sheets or Consolidated Statements of Operations. For U.S. federal income tax purposes, the tax years 2013 through 2016 remain open to examination by government tax authorities. For German income tax purposes, tax years 2012 through 2016 remain open to examination by government tax authorities. At June 30, 2016, our China location has no tax years open to examination.

The aggregate changes in the balance of unrecognized tax benefits were as follows (in thousands):



Year End June 30	2016
Balance, beginning of year	$	1,315
Increases for tax positions related to the current year		173
Decreases for tax positions related to the prior year		(1,237)
Balance, year end	$	251