|
12. |
Income Taxes |
Income (loss) from continuing operations before provision for income taxes is comprised of the following (in thousands):
|
|
|
Fiscal Year ended June 30, |
|
|||||||||
|
|
|
2017 |
|
|
|
2016 |
|
|
2015 |
|
||
|
Domestic |
|
$ |
(18,650 |
) |
|
$ |
(14,543 |
) |
|
$ |
(12,032 |
) |
|
Foreign |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
(18,650 |
) |
|
$ |
(14,543 |
) |
|
$ |
(12,032 |
) |
The provision (benefit) for income taxes includes the following (in thousands):
|
|
|
Fiscal Year ended June 30, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Income Tax |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Foreign Income Tax |
|
|
— |
|
|
|
— |
|
|
|
164 |
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
164 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Income Tax |
|
$ |
(1,210 |
) |
|
$ |
(5,103 |
) |
|
$ |
— |
|
|
Foreign Income Tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
$ |
(1,210 |
) |
|
$ |
(5,103 |
) |
|
$ |
— |
|
|
Total |
|
$ |
(1,210 |
) |
|
$ |
(5,103 |
) |
|
$ |
164 |
|
The Company recognized an income tax (benefit) from continuing operations of $(1.2) million and $(5.1) million, respectively, for the years ended June 30, 2017 and 2016. For the year ended June 30, 2015, the Company recognized income tax expense of $0.2 million from continuing operations.
During 2017 and 2016, the Company provided for income tax with respect to discontinued operations of $1.2 million and $5.1 million, respectively, related to intraperiod allocations. During 2017, income tax expense from discontinued operations totaled $0.9 million, net of the release of $0.3 million of accrued taxes for divested foreign subsidiaries and other for taxes previously accrued by the subsidiaries. No intraperiod allocations were made in 2015.
The following table reconciles the expected corporate federal income tax expense (benefit), computed by multiplying the Company's income (loss) before income taxes by the statutory income tax rate of 35% (in thousands):
|
|
|
Fiscal Year End June 30th, |
|
|||||||||
|
|
|
2017 |
|
|
|
2016 |
|
|
2015 |
|
||
|
Federal Benefit at Statutory Rate |
|
$ |
(6,523 |
) |
|
$ |
(5,090 |
) |
|
$ |
(4,211 |
) |
|
State taxes |
|
|
(794 |
) |
|
|
(12 |
) |
|
|
(211 |
) |
|
Effect of foreign corporations |
|
|
— |
|
|
|
(607 |
) |
|
|
(139 |
) |
|
Permanent adjustments |
|
|
22 |
|
|
|
(208 |
) |
|
|
3 |
|
|
Change in valuation allowance |
|
|
6,244 |
|
|
|
(164 |
) |
|
|
(3,320 |
) |
|
Abandonment of state net operating losses |
|
|
— |
|
|
|
— |
|
|
|
7,544 |
|
|
Stock compensation adjustment |
|
|
— |
|
|
|
924 |
|
|
|
794 |
|
|
Other |
|
|
(159 |
) |
|
|
54 |
|
|
|
(296 |
) |
|
Total Tax Expense/(Benefit) |
|
$ |
(1,210 |
) |
|
$ |
(5,103 |
) |
|
$ |
164 |
|
The tax effect of temporary differences that give rise to significant portions of the Company's deferred tax assets and liabilities are as follows (in thousands):
|
|
|
Fiscal Year End June 30 |
|
|||||||||
|
|
|
2017 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
Deferred Tax Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
612,378 |
|
|
$ |
623,221 |
|
|
$ |
617,331 |
|
|
Accruals and allowances not deductible for tax purposes |
|
|
141 |
|
|
|
278 |
|
|
|
(574 |
) |
|
Research and development credit and other carry -forwards |
|
|
39,112 |
|
|
|
38,371 |
|
|
|
38,371 |
|
|
Stock based compensation |
|
|
604 |
|
|
|
184 |
|
|
|
806 |
|
|
Unrealized loss on investment |
|
|
3,575 |
|
|
|
— |
|
|
|
— |
|
|
Investment in Partnership |
|
|
— |
|
|
|
— |
|
|
|
11,942 |
|
|
Total Deferred tax assets, gross |
|
$ |
655,810 |
|
|
$ |
662,054 |
|
|
$ |
667,876 |
|
|
Less: valuation allowance |
|
$ |
(655,810 |
) |
|
$ |
(662,054 |
) |
|
$ |
(667,876 |
) |
|
Total deferred tax assets, net |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
In light of the Company's history of cumulative operating losses, the Company recorded a valuation allowance for all of its federal and state deferred tax assets, as it is presently unable to conclude that it is more likely than not that the federal and state deferred tax assets in excess of deferred tax liabilities will be realized. The state deferred amounts reflected in the above table were calculated using the enacted tax rates. As a result of the sale of the product business, the Company does not have any foreign deferred tax assets as of June 30, 2017, 2016, and 2015.
As of June 30, 2017, the Company has net operating loss (NOL) carryforwards for federal and state income tax purposes of approximately $1.7 billion and $217 million, respectively. During the 2017 fiscal year, approximately $58 million of California net operating loss carryforwards expired. The Company has gross federal, California, and Massachusetts research and development credit carryforwards of approximately $30.0 million, $20.9 million, and $0.9 million, respectively. The federal NOL carryforwards and research and development credit carryforwards will expire from 2018 through 2036. The California research and development credits may be carried forward indefinitely. The Massachusetts research and development credit expires in 2025. The federal NOLs can be carried forward for 20 years; California net operating loss carryforwards will expire from 2018 through 2037; and the Massachusetts net operating loss carryforwards will expire from 2031 to 2037.
The following table reflects federal NOL carryforwards that will expire beginning in 2018 (in thousands):
|
Fiscal Year of Expiration |
|
Federal NOL carryforwards |
|
|
|
2018 |
|
$ |
15,511 |
|
|
2019 |
|
|
59,062 |
|
|
2020 |
|
|
488,814 |
|
|
2021 |
|
|
190,624 |
|
|
2022 |
|
|
143,137 |
|
|
2023 through 2037 |
|
|
797,851 |
|
|
Total |
|
$ |
1,694,999 |
|
Under Code Section 382, the utilization of a corporation's NOL carryforwards is limited following a change in ownership (as defined by the Code) of greater than 50% within a rolling three-year period.
During the 2015, 2016 and 2017 fiscal years, the total amount of gross unrecognized tax benefit activity was as follows (in thousands):
|
Balance as of June 30, 2014 |
|
$ |
13,290 |
|
|
Reductions for tax positions of prior years |
|
|
— |
|
|
Lapse of statute of limitations |
|
|
(152 |
) |
|
Balance as of June 30, 2015 |
|
|
13,138 |
|
|
Addition for tax positions of prior years |
|
|
— |
|
|
Reductions for tax positions of prior years |
|
|
— |
|
|
Lapse of statute of limitations |
|
|
(172 |
) |
|
Balance as of June 30, 2016 |
|
|
12,966 |
|
|
Addition for tax positions of prior years |
|
|
— |
|
|
Reductions for tax positions of prior years |
|
|
(54 |
) |
|
Lapse of statute of limitations |
|
|
(176 |
) |
|
Balance as of June 30, 2017 |
|
$ |
12,736 |
|
During the fiscal year ended June 30, 2017, the Company’s unrecognized tax benefits decreased by $0.2 million due to the expiration of certain statutes of limitations reflected in discontinued operations.
As of June 30, 2017 and June 30, 2016, the Company had approximately $12.7 million and $13.0 million, respectively of unrecognized tax benefits. All of the tax benefit realized during the 2017, 2016, and 2015 fiscal years were recorded as net income or expense from discontinued operations. The unrecognized tax benefits, if recognized, would impact the effective tax rate by $12.7 million and $13.0 million without considering the impact of the valuation allowance. The unrecognized tax benefit at June 30, 2017 of $12.7 million, is offset against the deferred tax asset for federal and state research and development tax credits.
The Company’s policy is to include interest and penalties related to unrecognized tax benefits in tax expense on the Company’s consolidated statements of operations. As of June 30, 2017, no amount is accrued for interest associated with tax liabilities.
Although timing of the resolution and/or closure on the Company's unrecognized tax benefits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next 12 months.
The Company files U.S. federal, U.S. state and foreign tax returns. Because of NOL carryforwards, substantially all of the Company's tax years, from the 1995 through 2016 fiscal years, remain open to IRS examinations with the exception of the 2010 and 2009 fiscal years for which IRS examinations have been completed. Substantially all of the Company’s tax years, from the 1995 through 2016 fiscal years, remain open to state tax examination with the exception of Alabama, Massachusetts, and Texas. Most of the Company's remaining foreign jurisdictions have three or four open tax years at any point in time.