9.	Income Taxes

Concurrent and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With a few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for fiscal years before 1999.

The domestic and foreign components of income before provision for income taxes are as follows:

	Year Ended June 30,
	2017		2016

United States	$	(13,179)	$	(4,970)
Foreign		1,031		264
	$	(12,148)	$	(4,706)

The components of the provision for income taxes are as follows:

	Year Ended June 30,
	2017		2016

Current:
Federal	$	(739)	$	(61)
State		(236)		(30)
Foreign		(144)		(271)
Total		(1,119)		(362)

Deferred:
Federal		115		7,617
State		(115)		646
Foreign		82		130
Total		82		8,393
Total	$	(1,037)	$	8,031

A reconciliation of the income tax expense computed using the federal statutory income tax rate to our provision (benefit) for income taxes is as follows:

	Year Ended June 30,
	2017		2016

Loss from continuing operations before provision (benefit) for income taxes	$	(12,148)	$	(4,706)

Benefit at federal statutory rate		(4,130)		(1,600)
Change in valuation allowance		5,500		10,497
Permanent differences		88		59
Net operating loss expiration and adjustment		(38)		63
Change in state tax rates		-		11
Change in foreign tax rates		1		1
Change in uncertainty in income taxes		(206)		23
U.S. research and development credits		(1,294)		-
Foreign rate differential		(40)		(118)
State and foreign tax expense		(388)		(150)
Other		(530)		(755)
Provision (benefit) for income taxes	$	(1,037)	$	8,031

As of June 30, 2017 and 2016, our deferred tax assets and liabilities were comprised of the following:

	June 30,
	2017		2016

Deferred tax assets related to:
U.S. and foreign net operating loss carryforwards	$	30,922	$	26,639
Book and tax basis differences for property and equipment		340		480
Bad debt, warranty and inventory reserves		683		732
Accrued compensation		1,363		970
Deferred revenue		60		23
U.S. credit carryforwards		2,068		608
Stock compensation		474		726
Acquired intangibles		-		11
Other		755		1,148
Deferred tax assets		36,665		31,337
Valuation allowance		(36,634)		(31,191)
Total deferred tax assets		31		146

Deferred tax liabilities related to:
Acquired intangibles		34		-
Total deferred tax liability		34		-
Deferred income taxes, net	$	(3)	$	146

The net deferred tax asset (liability) was classified on our consolidated balance sheets as follows:

	June 30,
	2017		2016

Non-current deferred tax asset	$	15	$	146
Non-current deferred tax liability		(18)		-
	$	(3)	$	146

As of June 30, 2017, we had U.S. federal net operating loss carryforwards (“NOLs”) of approximately $71,953 for income tax purposes, of which none expire in fiscal year 2017, and the remainder expire at various dates through fiscal year 2036. We recently completed an evaluation of the potential effect of Section 382 of the Internal Revenue Code (the “IRC”) 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 June 30, 2017. If we experience an ownership change as defined in Section 382 of the IRC, our ability to use these NOLs will be substantially limited, which could therefore significantly impair the value of that asset. See section below entitled “Tax Asset Preservation Plan” for details regarding steps we have taken to protect the value of our NOLs.

As of June 30, 2017, we had state NOLs of $37,394 and foreign NOLs of $28,335. The state NOLs expire according to the rules of each state and expiration will occur between fiscal year 2018 and fiscal year 2036. The foreign NOLs expire according to the rules of each country. Currently, none of the jurisdictions in which we have foreign NOLs are subject to expiration due to indefinite carryforward periods.

We have evaluated our ability to generate future taxable income in all jurisdictions that would allow it to realize the benefit associated with these NOLs. Based on our best estimate of future taxable income, we do not expect to fully realize the benefit of these NOLs. We expect a significant amount of the U.S. losses to expire without utilization, resulting in a valuation allowance in the U.S. on this portion of the NOLs.

We do not expect to realize the benefit of our NOLs in other international jurisdictions due to cumulative accounting losses, our long history of taxable losses and 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. We continue to maintain a full valuation allowance on losses in these other international jurisdictions.

We also have an alternative minimum tax credit for federal purposes of $828, which has an indefinite life, and a research and development credit carryforward for federal purposes of $1,239, which has a carryforward period of 20 years and will begin to expire in fiscal year 2025 and continue through fiscal year 2037. We do not expect to be able to realize the benefit of the research and development credit carryforward before its expiration, and we maintain a full valuation allowance on this item. See also the section below entitled “Research and Development Tax Credits.”

Of the $71,953 of aforementioned U.S. federal NOLs, $11,189 represents acquired NOLs from our acquisition of Everstream, Inc. (“Everstream”) in fiscal year 2006. Additionally, we acquired $140 in research and development credits in this transaction. The benefits associated with these Everstream losses and tax credits will likely be limited under Sections 382 and 383 of the IRC as of the date of acquisition. We have fully offset the deferred tax assets related to the research and development credits with a valuation allowance.

Deferred income taxes have not been provided for undistributed earnings of foreign subsidiaries because of our intent to reinvest them indefinitely in active foreign operations. Because of the availability of significant U.S. NOLs, it is not practicable to determine the U.S. income tax liability that would be payable if such earnings were not invested indefinitely. Deferred taxes are provided for the earnings of foreign subsidiaries when it becomes evident that we do not plan to permanently reinvest the earnings into active foreign operations. As of June 30, 2017, we have both the intent and ability to permanently reinvest our foreign earnings in our foreign subsidiaries, with the exception of our Hong Kong subsidiary. We have begun the process of closing the Hong Kong office and expect to complete this process during fiscal year 2018. We can no longer state that we have the intent to remain permanently reinvested in Hong Kong. However, because we have negative earnings and profits in our Hong Kong subsidiary, we do not expect to have any tax liability associated with any decisions made with regard to the closing of this office.

The valuation allowance for deferred tax assets as of June 30, 2017 and 2016 were $36,634 and $31,191, respectively. The change in the valuation allowance for the year ended June 30, 2017 was an increase of $5,443. This change consisted of (1) a $3,995 increase due to the creation of deferred tax assets during the year ended June 30, 2017, (2) a $1,570 increase due to other deferred tax adjustments, most of which was primarily attributable to research and development tax credits, and (3) a $123 decrease due primarily to stock compensation adjustments, exchange rate changes and the effect of unrealized gains/losses (the effect of which is a component of equity).

Deferred Tax Assets and Related Valuation Allowances

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining whether or not a valuation allowance for tax assets is needed, we evaluate all available evidence, both positive and negative, including: trends in operating income or losses; currently available information about future years; future reversals of existing taxable temporary differences; future taxable income exclusive of reversing temporary differences and carryforwards; taxable income in prior carryback years if carryback is permitted under the tax law; and tax planning strategies that would accelerate taxable amounts to utilize expiring carryforwards, change the character of taxable and deductible amounts from ordinary income or loss to capital gain or loss, or switch from tax-exempt to taxable investments. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. As of June 30, 2017, we maintain a full valuation allowance on our net deferred tax assets in all jurisdictions except Japan and the U.K. In Japan and the U.K., we believe that it is more likely than not that we will realize our entire deferred tax inventory, and no valuation allowance is needed.

In all other jurisdictions, we do not have sufficient evidence of future income to conclude that it is more likely than not that we will realize our entire deferred tax inventory. Therefore, we have placed a full valuation allowance on the deferred tax inventory. These jurisdictions include the U.S., Germany, Spain, Hong Kong, and Australia. We reevaluate our conclusions quarterly regarding the valuation allowance and we will make appropriate adjustments as necessary in the period in which significant changes occur.

Unrecognized tax benefits

A reconciliation of the beginning and ending amount of our unrecognized tax benefits for the fiscal years ended June 30, 2017 or 2016 is as follows:

Balance at June 30, 2015	$	297
Additions based on tax positions related to the current year		-
Additions for tax positions of prior years		-
Reductions for tax positions for prior year		-
Reductions for lapse in statute of limitations		-
Settlements		-
Balance at June 30, 2016		297
Additions based on tax positions related to the current year		-
Additions for tax positions of prior years		194
Reductions for tax positions for prior year		(154)
Reductions for lapse in statute of limitations		-
Settlements		-
Balance at June 30, 2017	$	337

The amount of gross tax effected unrecognized tax benefits as of June 30, 2017 was approximately $337 of which approximately $143, if recognized, would affect the effective tax rate. During the fiscal year ended June 30, 2017, we de-recognized approximately $260 of interest and $88 of penalties. We had approximately $22 and $281 of accrued interest at June 30, 2017 and 2016, respectively. We had nil and $88 of accrued penalties as of June 30, 2017 and 2016, respectively. We recognize potential interest and penalties related to unrecognized tax benefits as a component of income tax expense. We believe that the amount of uncertainty in income taxes will not change by a significant amount within the next 12 months.

Research and Development Tax Credits

During the year ended June 30, 2017, we applied for both a U.S. federal and state of Georgia research and development tax credit for our fiscal year ending June 30, 2016 in the amounts of $719 and $675, respectively. For U.S. federal tax purposes, the credit cannot be utilized immediately but will carryforward for a period of 20 years. As we do not expect to be able to realize the benefit of the U.S. federal tax credit carryforward before its expiration, we maintain a full valuation allowance on this item. For the state of Georgia tax credit, we have recorded the credit within other current assets with an offset in accrued expenses in our consolidated balance sheet as of June 30, 2017. As future payroll tax withholdings of our Georgia-based employees become due, we are able to offset the withholding amount dollar-for-dollar against the credit. As a result, as the credit is claimed, we will (1) reduce other current assets and offset the payroll tax liability and (2) reduce accrued expenses and recognize a reduction of operating expenses. During the year ended June 30, 2017, we recognized $173 of the state of Georgia credit and reduced operating expenses accordingly. As of June 30, 2017, the original balance of $675 for the state of Georgia research and development tax credit is reflected within other current assets as no amounts had yet been collected from the state of Georgia.

Additionally, we recorded $575 and $540 representing estimates of the U.S. federal and state of Georgia research and development tax credit for the fiscal year ending June 30, 2017, respectively. As noted above, for U.S. federal tax purposes, the credit cannot be utilized immediately and we maintain a full valuation allowance on this item. We recorded $64 of the fiscal year 2017 state of Georgia credit within other current assets with an offset in accrued expenses in our consolidated balance sheet as of June 30, 2017 representing the estimated portion we expect to realize within the next twelve months. The remainder of the fiscal year 2017 credit is reflected in other long-term assets with an offsetting amount in other long-term liabilities.

Tax Asset Preservation Plan

On March 1, 2016, we entered into a Tax Asset Preservation Plan (the “TAPP”) with American Stock Transfer & Trust Company, LLC, as rights agent. Our Board of Directors adopted the TAPP in an effort to deter acquisitions of the Company’s common stock, par value $0.01 per share (“Common Stock”), that would potentially limit our ability to use our net loss carryforwards and certain other tax attributes (collectively, “NOLs”) to reduce our potential future federal income tax obligations. As noted above, if we experience an “ownership change,” as defined in Section 382 of the IRC, our ability to use the NOLs could be substantially limited, and the timing of the usage of the NOLs could be substantially delayed, which could adversely affect the value of our NOLs.

The TAPP has a 4.9% “trigger” threshold which is intended to act as a deterrent to any person acquiring 4.9% or more of the outstanding Common Stock without the approval of our Board of Directors. This would protect our NOLs because changes in ownership by persons owning less than 4.9% of the outstanding Common Stock are not included in the calculation of whether the Company has experienced an ownership change under Section 382 of the IRC.

At our 2016 Annual Meeting of Stockholders held on October 26, 2016, our stockholders adopted a formal amendment to our certificate of incorporation for the same purpose (the “Protective Amendment”). The TAPP terminated in accordance with its terms on November 3, 2016 concurrent with the effectiveness of the amendment to our certificate of incorporation. The Protective Amendment will expire on the earliest of (i) the Board of Directors’ determination that the Protective Amendment is no longer necessary for the preservation of the Company’s NOLs because of the amendment or repeal of Section 382 or any successor statute, (ii) the close of business on the first day of any taxable year of Concurrent to which the Board of Directors determines that none of our NOLs may be carried forward (iii) such date as the Board of Directors otherwise determines that the Protective Amendment is no longer necessary for the preservation of the Concurrent’s NOLs and (iv) the date of our Annual Meeting of Stockholders to be held during calendar year 2017.