INCOME TAXES

12 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

INCOME TAXES

7. 

INCOME TAXES

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. The new legislation represents a fundamental and dramatic shift in US taxation. The new legislation contains several key tax provisions that will impact us including the reduction of the corporate income tax rate to 21% effective January 1, 2018. The new legislation also included a variety of other changes including but not limited to a limitation on the deductibility of interest expense, acceleration of business asset expensing and reduction in the amount of executive pay that could qualify as a tax deduction. The provision (benefit) for income taxes from continuing operations consists of the following amounts (in thousands):

	Years Ended June 30,
	2018		2017
Current:
Federal	$	579	$	34
State		19		40
Deferred:
Federal		247		(1,263	)
State		144		(900	)
Income tax expense (benefit)	$	989	$	(2,089	)

Section 15 of the Internal Revenue Code stipulates that our fiscal year ended June 30, 2018 will have a blended federal statutory tax rate of 27.55%, which is based on the applicable tax rates before and after the effectiveness of the Tax Act and the number of days in the year. The effective income tax rate from income (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,
	2018						2017
	Amount			Percent Pretax Income			Amount			Percent Pretax Income
Income (loss) from continuing operations before income taxes	$	2,610			100	%	$	2,752			100	%
Computed “expected” income tax expense (benefit) on income (loss) from continuing operations before income taxes	$	719			28	%	$	936			34	%
State tax, net of federal benefit		73			3	%		270			10	%
Tax incentives		(47	)		(2	%)		(36	)		(1	%)
Change in valuation allowance		202			8	%		(3,252	)		(118	%)
Tax law changes		119			5	%		—			—
Domestic production deduction		(84	)		(4	%)		—			—
Other		7			—			(7	)		(1	%)
Income tax expense (benefit)	$	989			38	%	$	(2,089	)		(76	%)

On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) which addresses income tax accounting implications of the Tax Act. The purpose of the SAB 118 was to address any uncertainty or diversity of view in applying ASC Topic 740, Income Taxes, in the reporting period in which the Tax Act was enacted. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we have made reasonable estimates of the effects and recorded provisional amount in our financial statements as of June 30, 2018. We expect that the completion of our accounting analysis will not have a material impact in our deferred tax assets and liabilities or our effective tax rate.

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,
	2018			2017
Deferred tax assets:
Federal & State NOL carryforward	$	23		$	181
Research & other credits		1,517			1,832
Reserves and accruals		438			180
Stock based compensation		55			—
Inventory		371			446
Other intangibles		70			178
Goodwill		—			77
Other		48			1
Total gross deferred tax assets	$	2,522		$	2,895
Less: valuation allowance		(368	)		(89	)
Total deferred tax assets		2,154			2,806

	June 30,
	2018			2017
Deferred tax liabilities:
Property and equipment, principally due to differing depreciation methods	$	(318	)	$	(438	)
Deferred state tax		(152	)		(295	)
Other intangibles		—			(2	)
Other		(6	)		(23	)
Total gross deferred tax liabilities		(476	)		(758	)
Net deferred tax assets	$	1,678		$	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, 2018, our deferred tax asset valuation allowance primarily consists of unrealized capital loss for investments held and the state net operating loss carryforwards for states in which we have filed a final return. For the year ended June 30, 2018, the Company recorded a net valuation allowance of $279,000, on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized.

As of June 30, 2018, we did not have any net operating losses for federal and state income tax purposes for state jurisdictions in which we currently operate. We have federal research and development and alternative minimum tax credit carry forwards at June 30, 2018 of approximately $877,000, which begin to expire in 2027. State tax research credit carry forwards at June 30, 2018 amount to $640,000, the majority of which do not expire.

As of June 30, 2018, we have accrued $462,000 of unrecognized tax benefits related to federal and state income tax matters that would reduce our 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,
	2018		2017
Unrecognized tax benefits:
Beginning balance	$	446	$	446
Additions based on federal tax positions related to the current year		16		18
Additions based on state tax positions related to the current year		—		—
Additions for tax positions of prior years		—		1
Reductions for tax positions of prior years		—		(19	)
Ending balance	$	462	$	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, 2018, 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, 2015 and later. However, because of net operating losses and research credit carryovers, substantially all of our tax years are open to audit.