Entity information:
NOTE
11
— INCOME TAXES
 
The following information is provided for the years ended
June 
30:
 
(In thousands)
 
2017
 
  
2016
    
2015
  
Components of income before income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
3,080
 
   $
14,004
     $
7,697
  
Foreign
 
 
—
 
    
—
      
(183
)
Income before income taxes
 
$
3,080
 
   $
14,004
     $
7,514
  
                         
Provision for income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
Current
                        
U.S. federal
 
$
800
 
   $
5,056
     $
2,364
  
State and local
 
 
59
 
    
582
      
237
  
Foreign
 
 
—
 
 
 
—
 
    
(12
)
Total current
 
 
859
 
    
5,638
      
2,589
  
                         
Deferred
 
 
(779
)
    
(1,116
)
    
(226
)
Total provision for income taxes
 
$
80
 
   $
4,522
     $
2,363
  
 
 
(In thousands)
 
2017
 
  
2016
    
2015
  
Reconciliation to federal statutory rate:
 
 
 
 
 
 
 
 
 
 
 
 
Federal statutory tax rate
 
 
34.0
%
    
35.0
%
    
34.0
%
State and local taxes, net of federal benefit
 
 
2.4
 
    
2.2
      
2.4
  
Impact of foreign operations
 
 
—
 
 
 
—
 
    
0.7
  
Federal and state tax credits
 
 
(5.3
)
    
(2.6
)
    
(3.7
)
Valuation allowance
 
 
(18.9
)
    
—
      
(3.8
)
Domestic production activities deduction
 
 
(4.1
)
    
(4.2
)
    
(4.0
)
Uncertain tax position activity
 
 
(5.5
)
    
(0.6
)
    
(1.3
)
Other
 
 
0.0
 
    
2.5
      
2.1
  
Sale of subsidiary
 
 
—
 
    
—
      
5.0
  
Effective tax rate
 
 
2.6
%
    
32.3
%
    
31.4
%
 
The components of deferred income tax assets and (liabilities) at
June 
30,
2017
and
2016
are as follows:
 
(In thousands)
 
201
7
 
  
2016
  
                 
Uncertain tax positions
 
$
281
 
   $
—
  
Reserves against current assets
 
 
584
 
    
679
  
Accrued expenses
 
 
3,357
 
    
3,690
  
Deferred compensation
 
 
925
 
    
842
  
Stock-based compensation
 
 
1,824
 
    
1,473
  
State net operating loss carryover and credits
 
 
1,853
 
    
1,878
  
Long term capital loss carryforward
 
 
3,703
 
    
4,272
  
U.S. Federal net operating loss carryover and credits
 
 
406
 
    
456
  
Deferred income tax asset before valuation reserve
 
 
12,933
 
    
13,290
  
Valuation reserve
 
 
(5,556
)
    
(6,150
)
                 
Deferred income tax asset
 
 
7,377
 
    
7,140
  
                 
Depreciation
 
 
(3,515
)
    
(4,270
)
Goodwill, acquisition costs and intangible assets
 
 
(502
)
    
(289
)
Deferred income tax liability
 
 
(4,017
)
    
(4,559
)
                 
Net deferred income tax asset
 
$
3,360
 
   $
2,581
  
 
 
As of
June 30, 2017
and
2016,
the Company has recorded a deferred tax asset in the amount of
$406,000
and
$456,000,
respectively, related to U.S. Federal net operating loss and research and development credit carryovers acquired in the acquisition of Virticus Corporation.  The net operating losses will expire over a period of
3
years, beginning in
June 30, 2029. 
The research and development credits will expire over a period of
2
years, beginning in
June 30, 2029. 
The annual utilization is limited by Internal Revenue Code Section
382.
  However, the Company has determined these assets, more likely than
not,
will be realized.
 
As of
June 
30,
2017
and
2016,
the Company has recorded a deferred state income tax asset in the amount of
$1,716,000,
net of federal tax benefits, related to non-refundable New York state tax credits. These credits do
not
expire, but pursuant to New York state legislation enacted in fiscal
2014,
the Company has determined that this asset, more likely than
not,
will
not
be realized. As of
June 30, 2017
and
2016,
the Company has recorded a full valuation reserve in the amount of
$1,716,000.
There was
no
change in the deferred state income tax asset or related valuation reserve in fiscal
2017.
 
As of
June 30, 2017
and
2016,
the Company has recorded a deferred state income tax asset in the amount of
$137,000
and
$162,000,
respectively
, related to a state net operating loss carryover and a state research and development credit in Oregon acquired during the acquisition of Virticus Corporation. The Company has determined this asset more likely than
not,
will
not
be realized and that a full valuation reserve is required. The Oregon net operating loss will expire over a period of
4
years, beginning in
June 30, 2027. 
Related to the Oregon research and development credit,
$11,000
expired during fiscal
2016
and the remaining balance of
$25,000
expired during fiscal
2017.
 
During fiscal
2015,
the Company recorded a deferred tax asset related to the sale of its Canadian subsidiary creating a long term capital loss carryforward totaling
$4,272,000.
  The Company previously determined that this asset, more likely than
not,
will
not
be realized within the
5
year carryforward period and that a full valuation reserve was required. In fiscal
2017
the Company sold its Kansas City facility that generated a long term capital gain. The capital loss carryforward related to the sale of the Canadian subsidiary will offset the long term gain from the sale of the Kansas City facility. The utilization of the capital loss carryforward will reduce the deferred tax asset with its corresponding full valuation allowance to
$3,703,000.
The long term capital loss carryforward will expire in
June 30, 2020.
 
Considering all issues discussed above, the Company has recorded valuation reserves of
$5,556,000
and
$6,150
,000
as of
June 
30,
2017
and
2016,
respectively.
 
The Company accounts for uncertain tax positions in accordance with accounting standards. At
June 
30,
2017,
tax, interest, and penalties, net of potential federal tax benefits, were
$657,000,
$268,000,
and
$194,000,
respectively, of the total reserve for uncertain tax positions of
$1,119,000.
Of the
$1,119,000
reserve for uncertain tax positions,
$925,000
would have an unfavorable impact on the effective tax rate if recognized. During fiscal
2017,
the Company added uncertain tax positions as a result of the acquisition of Atlas totaling
$483,000,
which is included in the
$1,119,000
above. Tax, interest, and penalties, net of potential federal tax benefits were
$314,000,
$79,000,
and
$90,000,
respectively. At
June 
30,
2016,
tax, interest, and penalties, net of potential federal tax benefits, were
$421,000,
$244,000,
and
$142,000
respectively, of the total reserve for uncertain tax positions of
$807,000.
Of the
$807,000
reserve for uncertain tax positions,
$665,000
would have an unfavorable impact on the effective tax rate if recognized. The liability for uncertain tax positions is included in Other Long-Term Liabilities.
 
The Company recognized a
$78,000
net tax benefit in fiscal
2017,
a
$26,000
net tax benefit in fiscal
2016,
and a
$40,000
net tax benefit in fiscal
2015
related to the change in reserves for uncertain tax positions. The Company recognized interest net of federal benefit and penalties of
$66,000
and
$27,000,
respectively, in fiscal
2017,
$48,000
and
$10,000,
respectively, in fiscal
2016,
and
$41,000
and
$17,000,
respectively in fiscal
2015.
The Company is recording estimated interest and penalties related to potential underpayment of income taxes as a component of tax expense in the Consolidated Statements of Operations. The reserve for uncertain tax positions is
not
expected to change significantly in the next
twelve
months.
 
 
The fiscal
2017,
2016
and
2015
tax activity in the liability for uncertain tax positions was as follows:
 
(in thousands)
 
201
7
 
  
2016
    
2015
  
                         
Balance at beginning of the fiscal year
 
$
648
 
   $
687
     $
746
  
Decreases — tax positions in prior period
 
 
(170
)
    
(161
)
    
(134
)
Increases — tax positions in current period
 
 
50
 
    
122
      
75
  
Increases — tax positions in prior period    
314
      
—
      
—
  
Settlements and payments
 
 
—
 
    
—
      
—
  
Lapse of statute of limitations
 
 
—
 
    
—
      
—
  
Balance at end of the fiscal year
 
$
842
 
   $
648
     $
687
  
 
The Company files a consolidated federal income tax return in the United States, and files various combined and separate tax returns in several state and local jurisdictions. With limited exceptions, the Company is
no
longer subject to U.S. Federal, state and local tax examinations by tax authorities for fiscal years ending prior to
June 
30,
2014.