8.	Income Taxes

Components of Provision (Benefit) for Income Taxes

The domestic and foreign components of income (loss) before the provision (benefit) for income taxes are as follows:

	Three Months Ended March 31,				Nine Months Ended March 31,
	2016		2015		2016		2015

United States	$	(2,025)	$	1,267	$	298	$	920
Foreign		407		297		846		559
Income (loss) before income taxes	$	(1,618)	$	1,564	$	1,144	$	1,479

We recorded an income tax benefit for our domestic and foreign subsidiaries of $442 and income tax expense of $716 during the three months ended March 31, 2016 and 2015, respectively, and an income tax benefit of $604 and income tax expense of $787 during the nine months ended March 31, 2016 and 2015, respectively. The components of the provision (benefit) for income taxes are as follows:

	Three Months Ended March 31,				Nine Months Ended March 31,
	2016		2015		2016		2015

United States	$	(750)	$	508	$	(1,161)	$	370
Foreign		308		208		557		417
Provision (benefit) for income taxes	$	(442)	$	716	$	(604)	$	787

For the three months ended March 31, 2016, the domestic tax expense is lower than the prior year primarily due to (1) lower pretax book income in the U.S. and (2) a lower annual estimated tax rate on domestic operations in the current fiscal year compared to the prior year. The foreign tax expense is higher than the prior year primarily due to (1) higher pretax book income in Japan offset by (2) a reduction in the statutory tax rate in Japan and (3) lower pretax book income in the U.K.

For the nine months ended March 31, 2016, the domestic tax expense is lower than the prior year primarily due to (1) the release of valuation allowance attributable to the tax impact of the gain on sale of our multi-screen video analytics product line and (2) lower pretax book income in the U.S. Any other domestic differences are due to differences in projected pretax book income and permanent book/tax differences between the two periods. The foreign tax expense is higher than the prior year primarily due to (1) higher pretax book income in Japan offset by (2) a reduction in the statutory tax rate in Japan and (3) lower pretax book income in the U.K.

Net Operating Losses

As of June 30, 2015, we had U.S. federal net operating loss carryforwards of approximately $92,943 for income tax purposes, of which none expire in fiscal year 2016, and the remainder expire at various dates through fiscal year 2035. We recently completed an evaluation of the potential effect of Section 382 of the Code on our ability to utilize these net operating losses. The study concluded that we have not had an ownership change for the period from July 22, 1993 to March 31, 2016. If we experience an ownership change as defined in Section 382 of the Code, our ability to use these NOLs will be substantially limited, which could therefore significantly impair the value of that asset. On March 1, 2016, we adopted a Tax Asset Preservation Plan in order to protect the value of our NOLs (see Note 4 – Tax Asset Preservation Plan).

As of June 30, 2015, we have state NOLs of $51,233 and foreign NOLs of $28,153. The state NOLs expire between fiscal year 2016 and fiscal year 2035. The foreign NOLs expire according to the rules of each country. Currently, none of the jurisdictions in which the Company has foreign NOLs are subject to expiration due to indefinite carryforward periods.

Valuation Allowance

Realization of our deferred tax assets is dependent primarily on the generation of future taxable income. In considering the need for a valuation allowance, we consider our historical and future projected operations along with other positive and negative evidence in assessing if sufficient future taxable income will be generated to use the existing deferred tax assets. The following summarizes our conclusions on the need for a valuation allowance in each jurisdiction as of March 31, 2016:

U.S. - For the nine months ended March 31, 2016, we sold the assets associated with our multi-screen video analytics product line, generating a gain of $4,116. This realized gain will provide an additional source of income that will allow us to realize an additional amount of deferred tax assets. We recognized a release of $1,355 of the valuation allowance on federal and state NOLs that will be used to offset this gain. Other than this discrete item in fiscal year 2016, we do not believe that there has been a significant change in our business in the U.S. that would require a change to our conclusion at the end of fiscal year 2015 with regard to the realizability of our U.S. deferred tax assets. As of March 31, 2016, the Company continues to have a three-year cumulative accounting profit in the U.S. after adjusting for permanent tax items and certain non-recurring adjustments, including the current year gain on the sale of our multi-video product line. However, we have incurred recent operating losses within the U.S. jurisdiction and there continues to be significant uncertainty in our domestic operations due to consolidation within the cable industry and the introduction of our Aquari storage system into the marketplace. Should we continue to incur operating losses in the U.S. in the near future, it is possible that, when weighing all available positive and negative evidence, we may reestablish a valuation allowance on our U.S. deferred tax assets. The result of this event could be material in the period in which it occurs.

U.K. - During our fiscal year 2014, a change in U.K. tax law relative to treatment of research and development expenses allowed us to release $214 of valuation allowances against deferred tax assets that we believe are now realizable as a result of the current period tax law change. We believe that in light of this law change, we will now generate sufficient taxable income to fully utilize our net deferred tax assets in the U.K.

Japan - Our subsidiary in Japan has a long history of profitable operations, and we continue to project profitability in Japan for the foreseeable future. Therefore, we continue to believe that we will fully realize the net deferred tax assets in Japan, and no valuation allowance is needed.

Other Foreign Jurisdictions - We also evaluated the need for a continued full valuation allowance against our foreign deferred tax assets in other jurisdictions. We concluded that a full valuation allowance against our deferred tax assets for other foreign jurisdictions was warranted due to, among other reasons, (i) the realized cumulative accounting losses, (ii) our long history of taxable losses and (iii) our uncertainty with respect to generating future taxable income in the near term given our recently completed projections and other inherent uncertainties in our business. However, in our German subsidiary, we are projecting improved operating results that may cause the three year cumulative accounting profit to become positive which may trigger a release of all or a portion of our valuation allowance on our German deferred tax assets. The result of this event could be material in the period in which it occurs.

Each quarter, we assess the total weight of positive and negative evidence and evaluate whether release of all or any portion of the valuation allowance is appropriate. Should we come to the conclusion that a release of our valuation allowances is required, or that additional valuation allowance is required, there could be a significant increase or decrease in net income and earnings per share in the period of release, or the additional valuation allowance, due to the impact on the tax rate.

Unrecognized Tax Benefits

The Company has evaluated its unrecognized tax benefits and determined that there has not been a material change in the amount of such benefits for the nine months ended March 31, 2016.