11.

Income Taxes

The Company’s income (loss) before income taxes were as follows (in thousands):


	Years Ended June 30,
	2015			2014			2013
Domestic	$	(5,203	)	$	(4,091	)	$	(6,826	)
Foreign		(126	)		4,101			(3,519	)

Total	$	(5,329	)	$	10		$	(10,345	)

The Company had no accumulated foreign earnings at June 30, 2015.

The provision for (benefit from) income taxes consists of the following (in thousands):


	Years Ended June 30,
	2015			2014		2013
Current:
Federal	$	—		$	—	$	(59	)
State		27			23		22
Foreign		(80	)		206		(171	)

Total current		(53	)		229		(208	)

Deferred:
Foreign		(267	)		120		(112	)

Provision for (benefit from) income taxes	$	(320	)	$	349	$	(320	)

The difference between the provision for (benefit from) income taxes and the amount computed by applying the federal statutory income tax rate to income (loss) before provision for (benefit from) income taxes is summarized below (in thousands):


	Years Ended June 30,
	2015			2014			2013
Tax at federal statutory rate	$	(1,813	)	$	3		$	(3,517	)
State taxes, net of federal benefit		(822	)		(36	)		462
Foreign taxes differential		5			451			432
Tax credits		(75	)		(59	)		(148	)
Non-deductible meals and entertainment		23			29			21
Stock compensation		160			(28	)		325
Unrecognized tax benefits		(60	)		11			(425	)
Imputed intercompany interest		80			132			243
Adjustments related to prior years		(288	)		21			(212	)
Change in valuation allowance		2,461			(237	)		2,462
Other		9			62			37

Provision for (benefit from) income taxes	$	(320	)	$	349		$	(320	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):


	Years Ended June 30,
	2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	38,178		$	35,947
Tax credit carryforwards		2,497			2,114
Inventory valuation		492			644
Depreciation and amortization		1,101			847
Other accruals not currently deductible for tax purposes		1,591			1,809
Other		—			85

Total deferred tax assets		43,859			41,446
Valuation allowance		(43,311	)		(40,850	)

Net deferred tax assets		548			596

Deferred tax liabilities:
Depreciation and amortization		—			(308	)
Purchased intangibles		(198	)		(297	)
Other		(92	)		—

Net deferred tax liabilities		(290	)		(605	)

Total net deferred tax assets (liabilities)	$	258		$	(9	)

Included in:
Other current assets	$	67		$	12
Other assets		205			(10	)
Long-term income taxes payable		(14	)		(11	)

	$	258		$	(9	)

For financial reporting purposes, the Company’s deferred tax assets have been substantially offset by a valuation allowance due to uncertainties about the Company’s ability to generate future taxable income. The change in the valuation allowance was a net increase (decrease) of $2.5 million and $(0.2) million for the years ended June 30, 2015, and June 30, 2014, respectively.

The accumulated tax benefits associated with employee stock options provide a deferred benefit of approximately $2.6 million which has been fully offset by the valuation allowance. The deferred tax benefit associated with the employee stock options will be credited to additional paid-in capital when realized.

The reversal of previously accrued income taxes reflects management’s reassessment of the appropriate level of tax liabilities for the Company based on the Company’s current level of operating activities and recent filing of its federal, state, and certain international tax returns.

At June 30, 2015, the Company had income tax carryfowards summarized as follows:


	Amount (in millions)		Years of expiration, if unused
Net operating loss carryforwards:
Federal	$	110		2022-2035
California		33		2016-2034
Other states		15		2016-2034
Foreign		7		No expiration date
Credit carryforwards:
Federal		3		2019-2034
State		6		No expiration date

Utilization of the net operating loss and credit carryforwards may be subject to a substantial annual limitation due to the change in ownership limitations provided in the Internal Revenue Code. The annual limitation may result in the expiration of the net operating losses and credits before utilization.

The Company evaluates if its income tax positions will more than likely not sustain on technical merits if audited by an income tax authority. The more likely than not threshold is assessed assuming that the taxing authority will examine the income tax position having full knowledge of all relevant information. At June 30, 2015 the Company had $7.9 million of unrecognized tax benefits of which $0.3 million , if recognized, would reduce the Company’s effective tax rate.

Adept files income tax returns in the U.S. federal jurisdiction, California and various state and foreign tax jurisdictions in which the Company has a subsidiary or branch operation. The tax years 1999 to 2013 remain open to examination by the U.S. and state tax authorities, and the tax years 2010 to 2013 remain open to examination by the foreign tax authorities or until the statute of limitations lapses in each jurisdiction.

Adept’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of June 30, 2015, the Company had no material accrued interest or penalties associated with unrecognized tax benefits. The Company does not expect an increase to the estimated amount of the liability associated with its uncertain tax position within the next twelve months.

The following table summarizes the activity related to Adept’s unrecognized tax benefits (in thousands):


	Years Ended June 30,
	2015		2014
Beginning balance	$	7,413	$	6,982
Increases related to prior year tax positions		424		407
Decreases related to prior year tax positions		—		(11	)
Increases related to current year tax positions		78		35

Ending balance	$	7,915	$	7,413

In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. The Company does not provide for U.S. income taxes on the earnings of foreign subsidiaries as such earnings are to be reinvested indefinitely. As of June 30, 2015, there is no cumulative amount of earnings upon which U.S. income taxes have not been provided.