(11) Income Taxes

 

(a) Income Taxes

 

Income tax expense for the years ended June 30, 2015,  2016 and 2017 consists of the following:

 

 

(b) Tax Rate Reconciliation

 

Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 34% to pretax income (loss) as a result of the following:

 

 

(c) Components of Deferred Tax Assets and Liabilities

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 2016 and 2017 are presented below.

 

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized through the generation of future taxable income. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income and tax-planning strategies in making this assessment. Taxable loss for the years ended June 30, 2015,  2016 and 2017 was approximately $12,424, $8,330 and $3,294, respectively, prior to utilization or establishment of net operating loss carryforwards. Based upon the same three-year period pre-tax book income, the Company is in a three-year cumulative loss position. As a result of this and other assessments in the year ended June 30, 2017, management concluded that a full valuation allowance is required for all deferred tax assets except for those associated with indefinite-lived intangible assets.

 

At June 30, 2017, the Company has gross excess tax benefits from stock option exercises of approximately $30,264 for federal and state income tax purposes. At June 30, 2017, the Company has net operating loss carryforwards for federal income tax purposes of approximately $484 and state income tax purposes of approximately $1,777, both excluding the excess tax benefits from stock option exercises noted above.  The net tax impact of $10,290 and $644 for federal and state income tax purposes, respectively, related to the excess tax benefits from stock option exercises will be credited to additional paid-in capital when realized. The federal NOL carryforwards expire from 2030 to 2037.The state NOL carryforwards expire from 2020 to 2037. The Company also has gross federal and state research and development tax credit and other state credit carryforwards of approximately $4,984, which expire between 2018 and 2037. In addition, the Company has alternative minimum tax credit carryforwards of approximately $11, which are available to reduce future federal regular income taxes, if any, over an indefinite period.

 

The Company had no unrecognized tax benefits as of June 30, 2015,  2016 and 2017, respectively.

 

The Company files income tax returns with the United States federal government and various state jurisdictions. Certain tax years remain open for federal and state tax reporting jurisdictions in which the Company does business due to net operating loss carryforwards and tax credits unutilized from such years or utilized in a period remaining open for audit under normal statute of limitations relating to income tax liabilities. The Company, including its domestic subsidiary, files a consolidated federal income tax return. For years before 2013 (fiscal year ended June 30, 2014), the Company is no longer subject to U.S. federal examination; however, the Internal Revenue Service (IRS) has the ability to review years prior to 2013 to the extent the Company utilized tax attributes carried forward from those prior years. The statute of limitations on state filings is generally three to four years.