16.Income Taxes

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



	2017		2016		2015
U.S.	$	(732)	$	(5,828)	$	(2,668)
Foreign		1,994		(3,389)		1,833
Total	$	1,262	$	(9,217)	$	(835)

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



	2017		2016		2015
Current (provision) benefit:
U.S. Federal, State & Other	$	(127)	$	(116)	$	(19)
Foreign		(727)		(185)		204
Deferred taxes
U.S.		-		(11,349)		1,051
Foreign		(576)		(1,246)		(862)
Total (provision) benefit	$	(1,430)	$	(12,896)	$	374

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



	2017		2016		2015

Benefit of net operating losses	$	8,787	$	9,268	$	8,582
Tax credit carry-forwards		5,284		5,451		5,006
Deferred revenue		2,073		1,434		1,665
Impaired investment		1,054		1,060		1,012
Property and intangible assets		187		242		-
Other		2,161		3,029		574
Deferred tax asset		19,546		20,484		16,839
Valuation allowance		(19,099)		(19,453)		(3,104)
Total deferred tax assets		447		1,031		13,735
Deferred tax liabilities - basis difference and amortization		(1,623)		(1,631)		(1,798)
Net deferred taxes	$	(1,176)	$	(600)	$	11,937

Rate Reconciliation:
Provision at U.S. statutory rate		34.0%		34.0%		34.0%
Net effect of taxes on foreign activities		49.5%		(5.9%)		(4.2%)
Tax effect of U.S. permanent differences		14.7%		2.6%		21.8%
State taxes and other, net		4.9%		(1.5%)		(0.4%)
Stock based compensation		56.9%		0.0%		(0.6%)
Other		(1.3%)		3.8%		(5.9%)
Valuation allowance		(45.6%)		(172.9%)		0.0%
Effective tax rate		113.1%		(139.9%)		44.7%

The amount of earnings retained for use by our foreign subsidiaries for which no tax provision has been made amounted to approximately $18.8 million as of June 30, 2017. 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, 2017, we had net operating loss carry-forwards for U.S. federal income tax purposes of $28.2 million that expire in the years 2022 through 2036 and tax credit carry-forwards of $5.3 million of which $5.0 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 has not recognized. Upon adoption of ASU 2016-09 on July 1, 2017, we expect to record a deferred tax asset for the tax effect of these net operating losses along with a corresponding increase in a valuation allowance.

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 2017. As of June 30, 2016, we had been in a three-year cumulative loss position in the U.S., therefore, at this time, we determined that it was not more likely than not that any of our U.S. deferred tax assets would be realized as benefits in the future. Accordingly, we established a full valuation allowance against our U.S. net deferred tax assets as of June 30, 2016 and this valuation allowance remains at June 30, 2017. Additionally during fiscal year 2016 and 2017, we established full valuation allowances against our Germany, Japan, Singapore and Brazil net deferred tax assets for similar reasons. The net change in the total valuation allowance for the fiscal years ended June 30, 2017, 2016 and 2015 was ($354,000), $16,349,000, and $0, respectively. We also have a deferred tax liability related to the basis difference in the Coord3 intangible assets acquired.

On June 30, 2017 and 2016, we had $120,000 and $251,000 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, 2017, 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 2014 through 2017 remain open to examination by government tax authorities. For German income tax purposes, tax years 2013 through 2017 remain open to examination by government tax authorities. At June 30, 2017, 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):



	2017
Balance, at June 30, 2016	$	251
Increases for tax positions related to the current year		-
Decreases for tax positions related to the prior year		(131)
Balance, at June 30, 2017	$	120