NOTE 9 - Income Taxes

 

The components of loss before income taxes are as follows (in thousands):

 

 

 

The benefit for income taxes from continuing operations consisted of the following (in thousands):

 

 

A reconciliation of the federal statutory rate to the effective income tax rate follows:

 

 

Changes in the effective tax rate from the prior year to the current year are due to the allocation of tax expense between continuing operations and discontinued operations when applying intraperiod allocation rules.

 

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis, as well as from net operating loss and tax credit carryforwards, and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.  Deferred income tax assets and liabilities represent amounts available to reduce or increase taxes payable on taxable income in future years.  Management evaluates the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including carrybacks (if applicable), reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies.  To the extent the Company does not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established.

 

Goodwill recorded as part of an asset purchase agreement is deductible for tax purposes and only recorded as a book charge if it is impaired. A deferred tax liability is recorded as the tax deduction is realized, which will not be reversed unless and until the goodwill is disposed of or impaired.  Due to the goodwill impairments recognized during fiscal year 2017, there was no deferred tax liability at June 30, 2017.

 

Significant components of the Company's deferred tax assets at June 30, 2017 and 2016 are shown below.  A valuation allowance has been established as realization of such deferred tax assets has not met the more likely-than-not threshold requirement.  The Company has recognized a valuation allowance to an amount it expects to realize via carry back based on fiscal year 2017 operations and the reversal of existing temporary differences.  The increase in the valuation allowance in fiscal year 2017 represents the increase in deferred tax assets that the Company has determined is not more likely than not of being recovered.  If the Company's judgment changes and it is determined that the Company will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction to income tax expense.

 

Components of our deferred tax assets and liabilities were as follows (in thousands):

 

 

As of June 30, 2017 and 2016, the income tax receivable was $0.5 million and $1.6 million, respectively, which were recorded in other current assets.  As of June 30, 2017, the deferred tax asset of $0.3 million is included in other long-term assets.

 

As of June 30, 2017, the Company had federal net operating loss carryforwards of approximately $10.3 million expiring beginning in 2027 and state net operating loss carryforwards of approximately $10.7 million expiring beginning in 2023.

 

Pursuant to the Internal Revenue Code Sections 382 and 383, use of the Company's U.S. federal and state net operating loss carryforwards may be limited in the event of a cumulative change in ownership of more than 50% within a three-year period.  The Company had an ownership change in 2012 and, as a result, certain of the Company's net operating loss carryforwards are subject to an annual limitation, reducing the amount available to offset income tax liabilities absent the limitation.

 

As of June 30, 2017, the Company had research and development tax credit carryforwards of approximately $0.3 million, foreign tax credit carryforwards of approximately $0.3 million, and alternative minimum tax credit carryforwards of approximately $0.3 million.  If unused, the research and development tax credit carryforwards will begin to expire in 2035 and the foreign tax credit carryforwards will expire in 2026.  The alternative minimum tax credits can be carried forward indefinitely.

 

The following table summarizes the changes in the Company's unrecognized tax benefits during the year ended June 30, 2017 and 2016 (in thousands).  The Company expects no material changes to unrecognized tax positions within the next twelve months.  If recognized, all of these benefits would favorably impact the Company’s income tax expense, before considerations of any related valuation allowance.