Income Taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized. As of June 30, 2017 and 2016, the Company had established a full valuation allowance against all of its net deferred tax assets.

For the fiscal year ended June 30, 2017, the Company incurred losses from operations in the amount of $11.8 million. The total effective tax rate is approximately 0% for the fiscal year. There is current state tax expense of approximately $2 thousand.

FASB ASC 740, Income Taxes addresses the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company had no unrecognized tax benefit for the years ended June 30, 2017 and June 30, 2016.

For the years ended June 30, 2017 and 2016, the Company’s effective tax rate differed from the federal statutory rate of 35%, primarily due to the valuation allowance placed against its net deferred tax assets.

Loss carryovers are generally subject to modification by tax authorities until three years after they have been utilized.

The components of income tax (expense) benefit from operations are as follows (in thousands):



	Year Ended June 30,
	2017			2016
Current
Federal	$	—		$	29
State and local	(2		)	(4		)
Total tax (expense) benefit	$	(2	)	$	25

A reconciliation of the reported income tax (expense) benefit to the amount that would result by applying the U.S. Federal statutory rate to the loss before income taxes to the actual amount of income tax (expense) benefit recognized follows (in thousands):



	Year Ended June 30,
	2017			2016
Expected benefit	$	3,996		$	4,576
State tax expense	(2		)	(4		)
Change in temporary tax adjustments not recognized	(3,905		)	(4,414		)
Other permanent items	(91		)	(133		)
Total income tax (expense) benefit	$	(2	)	$	25

The Company’s deferred tax assets as of June 30, 2017 and 2016 consist of the following (in thousands):



	Year Ended June 30,
	2017			2016
Deferred tax assets:
Net operating loss carryforwards	$	20,439		$	15,704
Alternative minimum tax credit carryforwards	857			857
Accrued expenses and other timing	1,344			1,473
Total gross deferred tax assets	$	22,640		$	18,034
Less — valuation allowance	(22,195		)	(17,939		)
Net deferred tax assets	$	445		$	95
Deferred tax liabilities:
Property and equipment, principally due to differences in depreciation	$	(445	)	$	(95	)
Total gross deferred tax liabilities	$	(445	)	$	(95	)
Net deferred tax assets (liabilities)	$	—		$	—

The Company files consolidated returns for Federal, Florida, and Texas income and franchise taxes. In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the net deferred tax assets will be utilized to offset future tax liabilities. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of June 30, 2017, the Company provided a full valuation allowance of approximately $22.2 million against its net deferred tax assets.

The valuation allowance increased by approximately $4.2 million for the year ended June 30, 2017. Since the Company reflects a full valuation allowance against its deferred tax assets, there has been no income tax impact from these changes.

At June 30, 2017, the Company had net operating loss carryforwards of approximately $56.9 million ($19.3 million, tax effected) for federal income tax purposes that are available to offset future regular taxable income. These net operating loss carryforwards expire between the years 2021 and 2036. Utilization of some of these net operating losses is limited due to the changes in stock ownership of the Company associated with the October 2007 Exchange Offer; as such, the benefit from these losses may not be realized.

The Company also has accumulated state net operating loss carryforwards of approximately $26.2 million ($1.1 million, tax effected) that are available to offset future state taxable income. These net operating loss carryforwards expire between the years 2031 and 2036. These losses may also be subject to utilization limitations; as such, the benefit from these losses may not be realized.

The Company has a temporary credit for business loss carryovers that may be utilized to offset its Texas margin tax. The credit amount is $0.5 million ($0.3 million, tax effected). These credits may be used to offset $13 thousand of state tax liability each year and will expire in 2027.

The Company has $0.9 million of alternative minimum tax credit carryforwards available to offset future regular tax liabilities.

Uncertain Tax Positions

The Company’s change in uncertain tax benefit reserves during 2017 and 2016 were as follows (in thousands):



	2017		2016
Balance at July 1	$	—	$	76
Additions for tax positions of current period	—		—
Additions for tax positions of prior years	—		—
Decreases for tax positions of prior years	—		(76		)
Balance at June 30	$	—	$	—

During 2016, the Company removed the uncertain tax benefit reserve of approximately $76 thousand. Due to the statute of limitations in California, the Company can no longer recognize the tax benefit related to state taxes. The Company recognizes interest and penalties related to income tax matters in income tax expense. For the years ended June 30, 2017 and 2016, the Company did not recognize any interest expense for uncertain tax positions. Furthermore, the Company no longer has a filing requirement in California as of June 30, 2017.