Entity information:

The income tax provision consists of the following components:

 

    Years Ended June 30,  
    2017     2016  
    (In thousands)  
Current:                
Federal   $ –     $ –  
State     6       2  
Foreign     62       61  
      68       63  
Deferred:                
Federal     –       –  
State     –       –  
      –       –  
Provision for income taxes   $ 68     $ 63  

 

The following table presents U.S. and foreign income (loss) before income taxes:

 

    Years Ended June 30,  
    2017     2016  
    (In thousands)  
United States   $ (465 )   $ (2,021 )
Foreign     256       122  
Loss before income taxes   $ (209 )   $ (1,899 )

 

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:

 

    Years Ended June 30,  
    2017     2016  
Deferred tax assets:   (In thousands)  
Tax losses and credits   $ 31,024     $ 31,005  
Reserves not currently deductible     3,114       2,763  
Deferred compensation     482       398  
Inventory capitalization     754       1,126  
Marketing rights     85       175  
Depreciation     252       430  
Other     218       216  
Gross deferred tax assets     35,929       36,113  
Valuation allowance     (35,449 )     (35,850 )
Deferred tax assets, net     480       263  
Deferred tax liabilities:                
State taxes     (480 )     (263 )
Deferred tax liabilities     (480 )     (263 )
Net deferred tax assets (liabilities)   $ –     $ –  

 

We have recorded a valuation allowance against our net deferred tax assets. The valuation allowance was established due to uncertainties surrounding the realization of the deferred tax assets.

 

The following table presents a reconciliation of the income tax provision to taxes computed at the U.S. federal statutory rate:

 

    Years Ended June 30,  
    2017     2016  
    (In thousands)  
Statutory federal provision (benefit) for income taxes   $ (71 )   $ (646 )
Increase (decrease) resulting from:                
State taxes, net of federal benefit     4       (38 )
Change in tax rate     86       15  
Stock options     (14 )     250  
Permanent differences     25       10  
Change in valuation allowance     (236 )     (133 )
Deferred compensation     44       185  
Section 956 inclusion     102       –  
Foreign tax rate variances     (25 )     19  
Other     153       401  
Provision for income taxes   $ 68     $ 63  

 

Due to the “change of ownership” provision of the Tax Reform Act of 1986, utilization of our net operating loss (“NOL”) carryforwards and tax credit carryforwards may be subject to an annual limitation against taxable income in future periods. Because of the annual limitation, a portion of these carryforwards may expire before ultimately becoming available to reduce future income tax liabilities. The following table summarizes our NOLs:

 

    June 30,  
    2017  
    (In thousands)  
Federal   $ 88,464  
State   $ 10,937  

 

Our NOL carryovers for federal income tax purposes will begin to expire in the fiscal year ending June 30, 2021. Our NOL carryovers for state income tax purposes began to expire in the fiscal year ended June 30, 2013. Deferred income taxes were not provided on undistributed earnings of certain foreign subsidiaries because such undistributed earnings are expected to be reinvested indefinitely.

 

The following table summarizes our liability for uncertain tax positions for the fiscal year ended June 30, 2017 (in thousands):

 

Balance as of June 30, 2016   $ 6,600  
Change in balances related to uncertain tax positions     –  
Balance as of June 30, 2017   $ 6,600  

 

At June 30, 2017, we had $6,600,000 of gross unrecognized tax benefits. Of the total unrecognized benefits at June 30, 2017, $6,600,000 was recorded as a reduction to deferred tax assets, which caused a corresponding reduction in our valuation allowance of $6,600,000. To the extent such portion of unrecognized tax benefits is recognized at a time such valuation allowance no longer exists, the recognition would reduce the effective tax rate. Our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. During the fiscal years ended June 30, 2017 and 2016 we recorded an immaterial expense for interest and penalties related to income tax matters in the provision for income taxes. At June 30, 2017, we had approximately $184,000 of accrued interest and penalties related to uncertain tax positions.

 

At June 30, 2017, our fiscal years ended June 30, 2014 through 2017 remain open to examination by the federal taxing jurisdiction and our fiscal years ended June 30, 2013 through 2017 remain open to examination by the state taxing jurisdictions. However, we have NOLs beginning in fiscal year ended June 30, 2001 which would cause the statute of limitations to remain open for the year in which the NOL was incurred. Our fiscal years ended June 30, 2010 through 2017 remain open to examination by foreign taxing authorities. We do not anticipate that the amount of unrecognized tax benefits as of June 30, 2017 will significantly increase or decrease within the next 12 months.