Income Taxes

12 Months Ended

Jun. 30, 2017

Income Tax Disclosure [Abstract]

Income Taxes

7.

Income Taxes

The provision for income tax expense (benefit) from continuing operations consists of the following amounts (in thousands):

	Years Ended June 30,
	2017			2016
Current:
Federal	$	34		$	11
State		40			14
Deferred:
Federal		(1,263	)		—
State		(900	)		—
Income tax expense (benefit)	$	(2,089	)	$	25

The effective income tax rate on loss from continuing operations differs from the United States statutory income tax rates for the reasons set forth in the table below (in thousands, except percentages).

	Years Ended June 30,
	2017						2016
	Amount			Percent Pretax Income			Amount			Percent Pretax Income
Income (loss) from continuing operations before income taxes	$	2,752			100	%	$	1,128			100	%
Computed “expected” income tax expense (benefit) on income (loss) from continuing operations before income taxes	$	936			34	%	$	384			34	%
State tax, net of federal benefit		270			10	%		9			1	%
Tax incentives		(36	)		(1	%)		(133	)		(12	%)
Change in valuation allowance		(3,252	)		(118	%)		(237	)		(21	%)
Permanent differences		—			—			—			—
State income tax rate adjustment		—			—			—			—
Other		(7	)		(1	%)		2			—
Income tax expense (benefit)	$	(2,089	)		(76	%)	$	25			2	%

Deferred income taxes reflect the net effects of loss and credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities for federal and state income taxes are as follows (in thousands):

	June 30,
	2017			2016
Deferred tax assets:
Federal & State NOL carryforward	$	181		$	1,144
Research & other credits		1,832			1,790
Reserves and accruals		180			337
Inventory		446			432
Other intangibles		178			237
Goodwill		77			89
Other		1			5
Total gross deferred tax assets	$	2,895		$	4,034
Less: valuation allowance		(89	)		(3,773	)
Total deferred tax assets	$	2,806		$	261

	June 30,
	2017			2016
Deferred tax liabilities:
Property and equipment, principally due to differing depreciation methods	$	(438	)	$	(261	)
Deferred state tax		(295	)		—
Other intangibles		(2	)		—
Other		(23	)		—
Total gross deferred tax liabilities		(758	)		(261	)
Net deferred tax assets	$	2,048		$	—

Realization of our deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. As of June 30, 2017, our deferred tax assets were primarily the result of Federal and State tax credit carryforwards. For the year ended June 30, 2017, there was a decrease in the valuation allowance in the amount of $3.7 million, primarily based upon management’s reassessment of the amount of our deferred tax assets that are more likely than not to be realized. During the year ended June 30, 2017, in part, because in the current year we achieved three years of cumulative pre-tax income, and have forecasted future earnings, management concluded that it is more likely than not that substantially all of its deferred tax assets are realizable, and therefore reduced the valuation allowance accordingly.

As of June 30, 2017, we did not have any net operating losses for federal income tax purposes. As of June 30, 2017 we have state net operating loss carry forwards of approximately $2,146,000 which will begin to expire in 2026. Federal research and development and alternative minimum tax credit carry forwards at June 30, 2017 amount to $1,111,000, and begin to expire in 2027. State tax research credit carry forwards at June 30, 2017 amount to $721,000, the majority of which do not expire.

As of June 30, 2017, we have accrued $446,000 of unrecognized tax benefits related to federal and state income tax matters that would reduce the Company’s income tax expense if recognized. If we are eventually able to recognize our uncertain tax positions, our effective tax rate would be reduced. Any adjustment to our uncertain tax positions would result in an adjustment of our tax credit carryforwards rather than resulting in a cash outlay.

Information with respect to our accrual for unrecognized tax benefits is as follows (in thousands):

	June 30,
	2017			2016
Unrecognized tax benefits:
Beginning balance	$	446		$	399
Additions based on federal tax positions related to the current year		18			15
Additions based on state tax positions related to the current year		—			13
Additions for tax positions of prior years		1			19
Reductions for tax positions of prior years		(19	)		—
Ending balance	$	446		$	446

Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examinations, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, we do not anticipate any significant changes to unrecognized tax benefits over the next twelve months.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense when applicable. As of June 30, 2017, no interest or penalties applicable to our unrecognized tax benefits have been accrued since we have sufficient tax attributes available to fully offset any potential assessment of additional tax.

We are subject to U.S. federal income tax, as well as income tax of multiple state tax jurisdictions. We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended June 30, 2014 and later. However, because of net operating losses and research credit carryovers, substantially all of our tax years are open to audit.