NOTE 8 - Income Taxes

The components of loss before income taxes are as follows (in thousands):


	2018		2017
United States	$	(12,849)	$	(16,560)
Foreign		(90)		(245)
Total	$	(12,939)	$	(16,805)

The benefit for income taxes from continuing operations consisted of the following (in thousands):


	2018		2017
Current:
Federal	$	(472)	$	(2,272)
State		14		15
Foreign		163		166
Total current benefit		(295)		(2,091)
Deferred:
Federal		239		(496)
State		21		(44)
Total deferred (benefit) expense		260		(540)
Income tax benefit	$	(35)	$	(2,631)

A reconciliation of the federal statutory rate to the effective income tax rate follows:


	2018		2017
Federal income taxes	27.6	%	34.0	%
State income taxes	2.5	%	2.1	%
Share-based compensation	(0.7)	%	(0.7)	%
Permanent items	(0.1)	%	(0.1)	%
Research and development tax credits	0.0	%	0.8	%
Foreign taxes	(1.3)	%	(1.0)	%
Remeasurement of deferred taxes	(10.1)	%	—	%
Effect of phased-in tax rate	(6.9)	%	—	%
Uncertain tax positions	1.4	%	(0.1)	%
Valuation allowance and other	(12.0)	%	(19.3)	%
Effective rate	0.4	%	15.7	%

Changes in the effective tax rate from the prior year to the current year are due to the allocation of tax expense between continuing operations and discontinued operations when applying intraperiod allocation rules.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act tax reform legistlation (the “Tax Act”). This legislation makes significant changes in U.S. tax law including a reduction in the corporate statutory income tax rates from 35% to 21%, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. As a result of the enacted law, we were required to revalue deferred tax assets and liabilities as of December 22, 2017 using the new statutory rate and have reflected this revaluation in our effective tax rate reconciliation. As we are subject to a valuation allowance, there was no material impact to our tax provision. The other provisions of the Tax Act did not have a material impact on the fiscal y ear 2018 financial statements.

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis, as well as from net operating loss and tax credit carryforwards, and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Deferred income tax assets and liabilities represent amounts available to reduce or increase taxes payable on taxable income in future years. Management evaluates the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including carrybacks (if applicable), reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. To the extent the Company does not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established.

Goodwill recorded as part of an asset purchase agreement is deductible for tax purposes and only recorded as a book charge if it is impaired. A deferred tax liability is recorded as the tax deduction is realized, which will not be reversed unless and until the goodwill is disposed of or impaired. Due to the goodwill impairments recognized during fiscal year 2017, there was no deferred tax liability at June 30, 2017.

Significant components of the Company's deferred tax assets at June 30, 2018 and 2017 are shown below. A valuation allowance has been established as realization of such deferred tax assets has not met the more likely-than-not threshold requirement. The Company has recognized a valuation allowance to an amount it expects to realize via carry-back based on fiscal year 2018 operations and the reversal of existing temporary differences. The increase in the valuation allowance in fiscal year 2018 represents the increase in deferred tax assets that the Company has determined is not more likely than not of being recovered. If the Company's judgment changes and it is determined that the Company will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction to income tax expense.

Components of our deferred tax assets and liabilities were as follows (in thousands):


	June 30, 2018		June 30, 2017
Deferred tax assets arising from:
Accrued liabilities and reserves	$	157	$	492
Deferred revenue		32		95
Bad debt reserves		20		52
Tangible property		73		127
Inventory reserve		513		756
Intangible assets		1,655		2,381
Other		6		43
Share-based compensation		179		161
Foreign tax credit carryforward		451		288
Research and development tax credits		238		311
Alternative minimum tax credits		—		318
Tax effects of net operating loss carryforwards		5,273		3,855
Less valuation allowances		(6,414)		(4,933)
Deferred tax assets		2,183		3,946

Deferred tax liabilities arising from:
Property and equipment		(2,144)		(3,533)
Prepaid expenses		(28)		(126)
Unrealized foreign currency gain		(11)		(27)
Deferred tax liabilities		(2,183)		(3,686)

Net deferred tax asset (liability)	$	—	$	260

As of June 30, 2018 and 2017, the income tax receivable was $0.5 million and $0.5 million, respectively, which were recorded in other current assets. As of June 30, 2018 and 2017, the deferred tax asset of zero and $0.3 million is included in other long-term assets, respectively.

As of June 30, 2018 and 2017, the Company had federal net operating loss carryforwards of approximately $21.8 million and $10.3 million, respectively, which will begin to expire from 2027 through 2038. At June 30, 2018 and 2017, the Company had state net operating carryforwards of approximately $16.7 million and $10.7 million, respectively, which will begin to expire from 2023 through 2028.

Pursuant to the Internal Revenue Code Sections 382 and 383, use of the Company's U.S. federal and state net operating loss carryforwards may be limited in the event of a cumulative change in ownership of more than 50% within a three-year period. The Company had an ownership change in 2012 and, as a result, certain of the Company's net operating loss carryforwards are subject to an annual limitation, reducing the amount available to offset income tax liabilities absent the limitation.

As of June 30, 2018 and 2017, the Company had research and development tax credit carryforwards of approximately $0.2 million and $0.3 million, respectively, foreign tax credit carryforwards of approximately $0.5 million and $0.3 million, respectively, and alternative minimum tax credit carryforwards of approximately $0.3 million and $0.3 million, respectively. If unused, the research and development tax credit carryforwards will begin to expire in 2034 through 2036 and the foreign tax credit carryforwards will expire in 2026 through 2028. The alternative minimum tax credits can be carried forward indefinitely and these credits became refundable credits upon exactment of the U.S. Tax Cuts and Jobs Acts in the current year.

The following table summarizes the changes in the Company's unrecognized tax benefits during the year ended June 30, 2018 and 2017 (in thousands). The Company expects no material changes to unrecognized tax positions within the next twelve months. If recognized, all of these benefits would favorably impact the Company’s income tax expense, before considerations of any related valuation allowance.


		June 30, 2018		June 30, 2017
Balance, beginning of year	$	823	$	783
Increase in current year position		—		40
Increase in prior year position		106		—
Decrease in prior year position		(50)		—
Lapse in statute of limitations		(76)		—
Balance, end of year	$	803	$	823