7. Income Taxes
The components of loss before income taxes were as follows (in thousands):
|
|
|
Fiscal Year Ended June 30, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
US |
|
$ |
(12,286 |
) |
|
$ |
(18,291 |
) |
|
$ |
(18,917 |
) |
|
Foreign |
|
|
(1,002 |
) |
|
|
(995 |
) |
|
|
(1,335 |
) |
|
Total |
|
$ |
(13,288 |
) |
|
$ |
(19,286 |
) |
|
$ |
(20,252 |
) |
The components of the (benefit from) provision for taxes were as follows (in thousands):
|
|
|
Fiscal Year Ended June 30, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(16 |
) |
|
$ |
(131 |
) |
|
$ |
(2,140 |
) |
|
State |
|
|
(1,270 |
) |
|
|
(23 |
) |
|
|
(149 |
) |
|
Foreign |
|
|
191 |
|
|
|
271 |
|
|
|
129 |
|
|
Total current (benefit from) provision for income taxes |
|
$ |
(1,095 |
) |
|
$ |
117 |
|
|
$ |
(2,160 |
) |
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
15 |
|
|
$ |
15 |
|
|
$ |
1,954 |
|
|
State |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Foreign |
|
|
— |
|
|
|
2 |
|
|
|
(38 |
) |
|
Total deferred provision for income taxes |
|
|
15 |
|
|
|
17 |
|
|
|
1,916 |
|
|
Total (benefit from) provision for income taxes |
|
$ |
(1,080 |
) |
|
$ |
134 |
|
|
$ |
(244 |
) |
The reconciliation between the statutory federal income tax and the Company’s effective tax rates as a percentage of loss before income taxes was as follows:
|
|
|
Fiscal Year Ended June 30, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Federal tax rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
States taxes, net of federal benefit |
|
|
14.5 |
% |
|
|
7.7 |
% |
|
|
5.8 |
% |
|
Foreign rate differential |
|
|
(0.3 |
)% |
|
|
(1.1 |
)% |
|
|
(1.1 |
)% |
|
Stock-based compensation expense |
|
|
(23.9 |
)% |
|
|
(15.7 |
)% |
|
|
(13.3 |
)% |
|
Change in valuation allowance |
|
|
(18.7 |
)% |
|
|
(25.2 |
)% |
|
|
(25.0 |
)% |
|
Research and development credits |
|
|
2.5 |
% |
|
|
2.7 |
% |
|
|
1.6 |
% |
|
Other |
|
|
— |
|
|
|
(3.1 |
)% |
|
|
(0.8 |
)% |
|
Effective income tax rate |
|
|
8.1 |
% |
|
|
(0.7 |
)% |
|
|
1.2 |
% |
The components of the long-term deferred tax liabilities, net were as follows (in thousands):
|
|
|
|
|
Fiscal Year Ended June 30, |
|
|||||
|
|
|
|
|
2017 |
|
|
2016 |
|
||
|
Noncurrent: |
|
|
|
|
|
|
|
|
|
|
|
Reserves and accruals |
|
|
|
$ |
2,198 |
|
|
$ |
3,309 |
|
|
Stock options |
|
|
|
|
4,805 |
|
|
|
5,885 |
|
|
Intangible assets |
|
|
|
|
41,639 |
|
|
|
47,850 |
|
|
Net operating loss |
|
|
|
|
27,719 |
|
|
|
18,812 |
|
|
Fixed assets |
|
|
|
|
194 |
|
|
|
9 |
|
|
Tax credits |
|
|
|
|
4,488 |
|
|
|
3,874 |
|
|
Other |
|
|
|
|
868 |
|
|
|
91 |
|
|
Total noncurrent deferred tax assets |
|
|
|
|
81,911 |
|
|
|
79,830 |
|
|
Valuation allowance - Long-term |
|
|
|
|
(81,964 |
) |
|
|
(79,868 |
) |
|
Noncurrent deferred tax liabilities, net |
|
|
|
$ |
(53 |
) |
|
$ |
(38 |
) |
The Company recorded a valuation allowance against the majority of the Company’s deferred tax assets at the end of fiscal year 2014 due to the significant negative evidence that the near term realization of certain assets were deemed unlikely. The Company regularly assesses the continuing need for a valuation allowance against its deferred tax assets. Significant judgment is required to determine whether a valuation allowance continues to be necessary and the amount of such valuation allowance, if appropriate. The Company considers all available evidence, both positive and negative to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating the continued need for a valuation allowance the Company considers, among other things, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, and the duration of statutory carryforward periods. As of June 30, 2017, the Company believes it is not more likely than not that the net deferred tax assets will be fully realizable and continues to maintain a full valuation allowance against its deferred tax assets.
As of June 30, 2017 and 2016, the Company had a federal operating loss carryforward of approximately $69.5 million and $45.3 million. As of June 30, 2017 and 2016, the Company’s state operating loss carryforward was approximately $37.1 million and $28.7 million. Included in the federal, California and other state net operating loss carryovers above were approximately $0.1 million, $0.3 million and $0.2 million related to stock option windfall deductions, which when realized will be credited to equity. The federal and state net operating losses, if not used, will begin to expire on June 30, 2035 and June 30, 2034. The operating loss carryforward in the Brazil jurisdiction was approximately $2.3 million and does not have an expiration date. The operating loss carryforward in the India jurisdiction was approximately $4.8 million which will begin to expire on June 30, 2021. The Company has federal and California research and development tax credit carry-forwards of approximately $2.1 million and $5.4 million to offset future taxable income. The federal research and development tax credits, if not used, will begin to expire on June 30, 2033, while the state tax credit carry-forwards do not have an expiration date and may be carried forward indefinitely.
Utilization of the operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of operating loss carryforwards and credits before utilization.
United States federal income taxes have not been provided for the $2.8 million of cumulative undistributed earnings of the Company’s foreign subsidiaries as of June 30, 2017. The Company’s present intention is that such undistributed earnings be permanently reinvested offshore, with the exception of the undistributed earnings of its Canadian subsidiary. The Company would be subject to additional United States taxes if these earnings were repatriated. The amount of the unrecognized deferred income tax liability related to these earnings is not material to the Company’s consolidated financial statements.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits was as follows (in thousands):
|
|
|
Fiscal Year Ended June 30, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Balance at the beginning of the year |
|
$ |
3,175 |
|
|
$ |
3,263 |
|
|
$ |
3,077 |
|
|
Gross increases - current period tax positions |
|
|
295 |
|
|
|
362 |
|
|
|
337 |
|
|
Gross increases - prior period tax positions |
|
|
51 |
|
|
|
38 |
|
|
|
115 |
|
|
Gross decreases - prior period tax positions |
|
|
(429 |
) |
|
|
— |
|
|
|
(44 |
) |
|
Reductions as a result of lapsed statute of limitations |
|
|
(254 |
) |
|
|
(488 |
) |
|
|
(222 |
) |
|
Balance at the end of the year |
|
$ |
2,838 |
|
|
$ |
3,175 |
|
|
$ |
3,263 |
|
The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the Company’s benefit from (provision for) income taxes. As of June 30, 2017, the Company has accrued $1.0 million for interest and penalties related to the unrecognized tax benefits. The balance of interest and penalties is recorded as a noncurrent liability in the Company’s consolidated balance sheet.
As of June 30, 2017, unrecognized tax benefits of $1.1 million, if recognized, would affect the Company’s effective tax rate. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months.
The Company is no longer subject to U.S. federal, state and local, or non-U.S., income tax examinations by tax authorities for years before 2013. The Company files income tax returns in the United States, various U.S. states and certain foreign jurisdictions. As of June 30, 2017, the tax years 2013 through 2016 remain open in the U.S., the tax years 2012 through 2016 remain open in the various state jurisdictions, and the tax years 2014 through 2016 remain open in various foreign jurisdictions.