NOTE 14. INCOME TAXES

The Company and its non-Canadian subsidiaries file a consolidated U.S. federal income tax return. USCAN files a separate tax return in Canada. Provisions for income taxes include deferred taxes for temporary differences in the bases of assets and liabilities for financial and tax purposes resulting from the use of the liability method of accounting for income taxes.

The CARES Act was signed into law on March 27, 2020. While a number of the CARES Act’s provisions will be reflected in future accounting periods, certain income tax accounting measures are reflected in the period of enactment. The business tax provisions of the Act include temporary changes to income and non-income-based tax laws. Some of the key income tax provisions that may affect the Company include:

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Eliminating the 80% of taxable income limitations by allowing corporate entities to fully utilize net operating loss (NOL) carryforwards generated during the 2019 and 2020 fiscal years to offset taxable income in the 2019, 2020 or 2021 fiscal years and reinstating the limitation with the 2022 fiscal year;

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Allowing net operating losses generated in fiscal years 2019, 2020 or 2021(tax years 2018, 2019 and 2020) to be carried back five years;

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Allowing entities to deduct more of their charitable cash contributions made during calendar year 2020 by increasing the taxable income limitation to 25% from 10%.

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Modification of the adjusted taxable income limitation from 30% to 50% for fiscal years 2020 and 2021 (tax years 2019 and 2020) for computing deductible interest.

Carryovers

For U.S. federal income tax purposes at June 30, 2020, the Company has U.S. federal net operating loss carryovers of $8.8 million with $2.0 million and $2.7 million expiring in fiscal years 2035 and 2036, respectively, and $4.1 million with no expiration. The carryover amount of $4.1 million, which was generated after fiscal year 2018, may be carried forward indefinitely with no limitation on usage prior to fiscal year 2022, but certain limitations apply to the utilization of net operating losses thereafter. The Company has capital loss carryovers of $1.1 million with $728,000 and $348,000 expiring in fiscal years 2022 and 2023, respectively. The Company has charitable contribution carryovers totaling approximately $36,000 with $5,000; $10,000; $5,000; and $16,000 expiring in fiscal years 2021, 2023, 2024, and 2025, respectively.

For Canadian income tax purposes, USCAN has net operating loss carryovers of $122,000 that expire in fiscal year 2040.

If certain changes in the Company's ownership should occur, there could be an annual limitation on the amount of net operating loss carryovers that could be utilized.

Additional Disclosures

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax amount will not be realized. At June 30, 2020, and 2019, a valuation allowance of $2.8 million and $1.9 million, respectively, was included to fully reserve for net operating loss carryovers, other carryovers and certain book/tax differences in the balance sheet.

The Company's components of income (loss) before tax by jurisdiction are as follows:

	Year ended June 30,
(dollars in thousands)	2020			2019
United States	$	(3,261	)	$	(1,613	)
Canada		(1,716	)		(2,803	)
Total	$	(4,977	)	$	(4,416	)

The reconciliation of income tax computed at U.S. federal statutory rates to income tax expense is as follows:

	Year ended June 30,
(dollars in thousands)	2020			% of Pretax			2019			% of Pretax
Tax expense (benefit) at statutory rate - continuing operations	$	(974	)		21.0	%	$	(896	)		21.0	%
Tax benefit from change in foreign unrealized gain/loss		(203	)		4.4	%		(679	)		15.9	%
Change in valuation allowance		885			(19.1	%)		353			(8.3	%)
Rate difference on foreign deferred income		153			(3.3	%)		327			(7.7	%)
Other		(36	)		0.8	%		(82	)		2.0	%
Total tax expense (benefit) - continuing operations	$	(175	)		3.8	%	$	(977	)		22.9	%

Components of total tax expense (benefit) are as follows:

	Year ended June 30,
(dollars in thousands)	2020			2019
Continuing Operations
Current tax expense (benefit) - U.S. Federal	$	(1	)	$	4
Current tax expense (benefit) - Non-U.S.		3			(15	)
Deferred tax expense - U.S. Federal		-			-
Deferred tax benefit - Non-U.S.		(177	)		(966	)
Total tax benefit - continuing operations	$	(175	)	$	(977	)

Discontinued Operations
Current tax expense (benefit) - Non-U.S.		-			-
Total tax benefit	$	(175	)	$	(977	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the Company’s deferred assets and liabilities are as follows:

	June 30,
(dollars in thousands)	2020			2019
Book/tax differences in the balance sheet
Investments in securities at fair value	$	448		$	(99	)
Prepaid expenses		(50	)		(45	)
Accumulated depreciation		105			111
Other investments		(65	)		(124	)
Equity method investments		14			(6	)
Accrued expenses		148			72
Product start-up costs		60			60
Other		(19	)		(55	)
Tax Carryovers
Net operating loss carryover		1,887			1,573
Charitable contributions carryover		8			8
Capital loss carryover		226			249
Valuation Allowance		(2,762	)		(1,877	)
Net deferred tax liability	$	-		$	(133	)