9. Income Taxes

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and in 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 (loss) income from continuing operations before income taxes are as follows:


	Fiscal Year Ended June 30,
	2019		2018
	(Amounts in thousands)

United States	$	750	$	(18,260)
Foreign		(160)		10,547
Income (loss) from continuing operations	$	590	$	(7,713)

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


	Fiscal Year Ended June 30,
	2019		2018
	(Amounts in thousands)

Current:
Federal	$	(19)	$	(45)
State		34		(51)
Foreign		—		90
Total current		15		(6)

Deferred
Federal		6		(975)
State		19		—
Foreign		—		22
Total deferred		25		(953)
Total	$	40	$	(959)

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


	Fiscal Year Ended June 30,
	2019		2018
	(Amounts in thousands)

Provision (benefit) at federal statutory rate	$	124	$	(2,120)
Change in valuation allowance		(1,709)		(7,124)
Permanent differences		3		478
Gain on sale of operations - permanent difference		—		536
Net operating loss expiration and adjustment		2,284		(145)
Change in federal tax rates		—		7,413
Change in state tax rates		(244)		(205)
Change in foreign tax rates		—		(86)
Change in uncertain tax positions		6		3
U.S. research and development credits		—		489
Foreign rate differential		(16)		29
State and foreign tax expense		77		(98)
Loss attributable to non-controlling interest		28		—
Other		(513)		(129)
Provision (benefit) for income taxes	$	40	$	(959)

Our deferred tax assets were comprised of the following:


	June 30,
	2019		2018
	(Amounts in thousands)

Deferred tax assets related to:
U.S. and foreign net operating loss carryforwards	$	16,017	$	18,297
Accrued compensation		1,262		1,117
Unrealized gain/loss on investments		1,828		—
Partnership investment		237		—
U.S. credit carryforwards		1,225		1,726
Stock compensation		190		680
Acquisition costs		75		—
Other		76		709
Deferred tax assets		20,910		22,529
Valuation allowance		(20,435)		(21,554)
Total deferred tax assets	$	475	$	975

As of June 30, 2019, we had U.S. federal NOLs of approximately $56,789,000 for income tax purposes, of which none expire in fiscal year 2019, and the remainder expire at various dates through fiscal year 2037; however, with the enactment of the Tax Cuts and Jobs Act (the "TCJA") on December 22, 2017, federal NOLs generated in taxable years beginning after December 31, 2017 now have no expiration date. 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 NOLs. The study concluded that we have not had an ownership change for the period from July 22, 1993 to June 30, 2019; therefore, the NOLs that we have generated will not be subject to limitation under Section 382. However, NOLs from a prior acquistion are subject to limitation under Section 382, as discussed below. If we experience an ownership change as defined in Section 382 of the IRS, 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, 2019, we had state NOLs of $29,977,000 and foreign NOLs of $8,296,000. The state NOLs expire according to the rules of each state and expiration will occur between fiscal year 2019 and fiscal year 2037. The foreign NOLs expire according to the rules of each country. As of June 30, 2019, the foreign NOLs can be carried forward indefinitely in each country, although some countries do restrict the amount of NOL that can be used in a given tax year.

We have evaluated our ability to generate future taxable income in all jurisdictions that would allow the Company 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. NOLs to expire without utilization, resulting in a valuation allowance in the United States on this portion of the NOLs. We do not expect to realize the benefits of the Company’s 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 NOLs in these other international jurisdictions.

The Company also has a $950,000 federal Alternative Minimum Tax (“AMT”) credit carryforward which has an indefinite life, of which half will be refundable on the Company's June 30, 2019 tax return, and the remainder will be fully refundable by our fiscal year 2022. $475,000 of this amount is therefore included in prepaid expenses in the consolidated balance sheet as of June 30, 2019. The Company also has a research and development credit carryforward for federal purposes of $751,000, which has a carryforward period of 20 years and will expire in fiscal years 2023 through 2036. We do not expect the Company will 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. The AMT credit is now a refundable credit under the TCJA. As such, no valuation allowance is needed on this item.

Of the $56,789,000 of aforementioned U.S. federal NOLs and $751,000 of research and development credits, $11,189,000 represents acquired NOLs and $140,000 represents acquired R&D credits from a prior acquisition. The benefits associated with these acquired losses and tax credits will likely be limited under Sections 382 and 383 of the Internal Revenue Code as of the date of acquisition. We have fully offset the deferred tax assets related to these tax credits and NOLs with a valuation allowance.

As a result of the TCJA, we have reassessed our intentions related to our indefinite reinvestment assertion as part of our provisional estimates. We no longer have the intent and ability to reinvest all undistributed earnings in the respective business of our wholly owned subsidiaries. However, except for our Australian subsidiary, we did not have accumulated earnings in profits in these companies as of June 30, 2018. Australia held only an insignificant amount of cash as of this date and no longer holds any assets as of June 30, 2019. The Company was also subject to the Sec. 965 "Transition Tax" on the June 30, 2018 tax return. The final calculation performed for this return resulted in no Transition Tax due, because of a net accumulated deficit for all controlled foreign corporations. Because of the Company's shift in operations during the fiscal year ended June 30, 2019, all foreign subsidiaries were either dissolved or are in the process of dissolving. As a result, any remaining impact on income taxes - for example, state taxes, withholding taxes, or foreign exchange differences – would be immaterial.

The valuation allowances for deferred tax assets as of June 30, 2019 and 2018 were $20,494,000 and $21,554,000, respectively. The change in the valuation allowance for the fiscal year ended June 30, 2019 was a decrease of approximately $1,060,000. This change consisted of (i) a $124,000 decrease due to the usage of deferred tax assets during the fiscal year ended June 30, 2019, (ii) a $460,000 increase due to true-ups of prior fiscal year deferred tax amounts, and (iii) a $244,000 increase due to a change in tax rates. There was a $2,010,000 decrease due to the elimination of deferred tax assets from our liquidated foreign subsidiaries. These deferred tax assets were primarily associated with net operating loss carryforwards that will no longer be used. Additionally, there was (i) a $304,000 decrease due to other deferred tax adjustments, (ii) a $25,000 increase due to finalizing the June 30, 2018 AMT liability, and (iii) a $649,000 increase due to stock compensation adjustments, exchange rate changes, and unrealized gains/losses, the effect of which was 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 tax years, future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback tax 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, 2019, we maintain a full valuation allowance on our net deferred tax assets in all jurisdictions, except for the $475,000 AMT credit carryforward that is now considered refundable after the enactment of the TCJA. We do not have sufficient evidence of future income to conclude that it is more likely than not the Company will realize its entire deferred tax inventory in any of its jurisdictions (United States and Germany). Therefore, we have recognized a full valuation allowance on the Company’s deferred tax inventory. We reevaluate our conclusions quarterly regarding the valuation allowance and 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, 2019 and 2018 is as follows (amounts in thousands):


Balance at July 1, 2017	$	337
Reductions for tax positions for prior year		(86)
Balance at June 30, 2018		251
Activity for year ended June 30, 2019		—
Balance at June 30, 2019	$	251

The amount of gross tax-effected unrecognized tax benefits as of June 30, 2019 was approximately $251,000 of which approximately $143,000, if recognized, would affect the effective tax rate. During the fiscal year ended June 30, 2019, we recognized approximately $6,000 of interest. We had approximately $33,000 and $27,000 of accrued interest at June 30, 2019 and 2018, respectively. We had no accrued penalties as of either June 30, 2019 or 2018. 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.

The Company and its subsidiaries file income taxes returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. With 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.

Research and Development Tax Credits

During the fiscal year ended June 30, 2017, we applied for both a U.S. federal and state of Georgia research and development tax credit in the amounts of $719,000 and $675,000, respectively, for our fiscal year ending June 30, 2016. 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 both other current assets and other long-term assets with an offset in both accrued expenses and other long-term liabilities in our consolidated balance sheets as of June 30, 2019 and 2018, respectively. 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 (i) reduce other current assets and offset the payroll tax liability and (ii) reduce accrued expenses and recognize a reduction of operating expenses.

During our fiscal years ended June 30, 2019 and 2018, we recognized $66,000 and $287,000, respectively, of the state of Georgia credit, and reduced operating expenses accordingly. As of June 30, 2019, State tax credit assets of $36,000 and $49,000 are reflected within other current assets and other long-term assets, respectively, and unrecogized income from these credits of $35,000 and $41,000 are reflected in accrued expenses and other long-term liabilities, respectively.

Tax Asset Preservation Plan

At our 2016 Annual Meeting of Stockholders held on October 26, 2016, our stockholders adopted a formal amendment to our certificate of incorporation (the “Protective Amendment”) to deter any person acquiring 4.9% or more of the outstanding common stock without the approval of our Board in order to protect the value of our NOLs. The Protective Amendment was extended by our stockholders at our 2017 Annual Meeting of Stockholders held on October 25, 2017 and 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 CCUR Holdings 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 Company’s NOLs and (iv) the date of our Annual Meeting of Stockholders to be held during calendar year 2019.

As indicated in our Form 8‑K filed on May 11, 2018, the Company executed and delivered the Third Amended Consent and Limited Waiver to the Standstill Agreement, filed therewith as Exhibit 10.1 (the “Amended Consent and Limited Waiver”), to JDS1, LLC and Julian Singer (together with their affiliates and associates, the “Investor Group”). The Amended Consent and Limited Waiver provides that so long as (i) the Investor Group collectively beneficially own no more than 4,176,180 of the outstanding shares of common stock of the Company, including the Investor Group’s beneficial ownership of Common Stock as a result of the exercise or assignment of any option contracts, and (ii) any acquisition of common stock of the Company by the Investor Group would not reasonably be expected to limit the Company’s ability to utilize the Company’s NOLs, the Company shall not deem the Investor Group to have effected a Prohibited Transfer as that term is defined in the Company’s Restated Certificate of Incorporation.