INCOME TAXES

12 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

5.

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 contained several key tax provisions that impacted 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 for income taxes consists of the following amounts (in thousands):

	Years Ended June 30,
	2019			2018
Current:
Federal	$	(140	)	$	579
State		21			19
Deferred:
Federal		1,079			247
State		339			144
Income tax expense	$	1,299		$	989

Section 15 of the Internal Revenue Code stipulated that our fiscal year ended June 30, 2018 have a blended federal statutory tax rate of 27.55%, which was 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,
	2019						2018
	Amount			Percent Pretax Income			Amount			Percent Pretax Income
Income before income taxes	$	5,447			100	%	$	2,610			100	%
Computed “expected” income tax expense on income before income taxes	$	1,135			21	%	$	719			28	%
State tax, net of federal benefit		281			5	%		73			3	%
Tax incentives		(85	)		(1	%)		(47	)		(2	%)
Change in valuation allowance		11			—			202			8	%
Tax law changes		(8	)		—			119			5	%
Domestic production deduction		8			—			(84	)		(4	%)
Other		(43	)		(1	%)		7			—
Income tax expense	$	1,299			24	%	$	989			38	%

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,
	2019			2018
Deferred tax assets:
Federal & State NOL carryforward	$	23		$	23
Research & other credits		347			1,517
Reserves and accruals		431			438
Stock based compensation		9			55
Inventory		357			371
Other intangibles		37			70
Other		147			48
Total gross deferred tax assets	$	1,351		$	2,522
Less: valuation allowance		(477	)		(368	)
Total deferred tax assets		874			2,154

	June 30,
	2019			2018
Deferred tax liabilities:
Property and equipment, principally due to differing depreciation methods	$	(527	)	$	(318	)
Deferred state tax		(81	)		(152	)
Other		(6	)		(6	)
Total gross deferred tax liabilities		(614	)		(476	)
Net deferred tax assets	$	260		$	1,678

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, 2019, 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, 2019, we recorded a net valuation allowance of $109,000, on the basis of management’s reassessment of the amount of our deferred tax assets that are more likely than not to be realized.

As of June 30, 2019, 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 no federal research and development and alternative minimum tax credit carry forwards at June 30, 2019. State tax research credit carry forwards at June 30, 2019 amount to $347,000, the majority of which do not expire.

As of June 30, 2019, we have accrued $490,000 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,
	2019		2018
Unrecognized tax benefits:
Beginning balance	$	462	$	446
Additions based on federal tax positions related to the current year		11		8
Additions based on state tax positions related to the current year		11		8
Additions for tax positions of prior years		6		—
Reductions for tax positions of prior years		—		—
Ending balance	$	490	$	462

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, 2019, 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 California and Colorado. We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended June 30,

2016 and later.  However, because of net operating losses and research credit carryovers, substantially all of our tax years are open to audit.