Income Taxes

3 Months Ended

Sep. 30, 2017

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

Total income tax expense was approximately $58,000 and $265,000 for the three months ended September 30, 2017 and 2016, respectively. A summary of our effective income tax rate for the three months ended September 30, 2017 and 2016 is as follows:

	Three months ended September 30,
	2017			2016
Income before income taxes	$	275,679		$	405,696
Income tax expense	$	57,984		$	265,200
Effective income tax rate		21	%		65	%

We primarily operate in the U.S., China and Latvia. As of September 30, 2017, our China and Latvia operations are subject to statutory income tax rates of 25% and 15%, respectively, which are lower than our U.S. federal statutory tax rate of 34%. We have net operating loss (“NOL”) carryforward benefits of approximately $84 million in the U.S. The NOL does not apply to income generated by our foreign subsidiaries.

For the three months ended September 30, 2017, we recorded income tax expense of approximately $58,000, which was lower than the income tax expense computed using the U.S. statutory federal tax rate due to the jurisdictional mix of income and losses. We reported a pretax loss in the U.S. for the three months ended September 30, 2017: however we do not anticipate any benefit due to the valuation allowance against our net U.S. deferred tax assets. Accordingly, in the first quarter of fiscal 2017, we recognized income tax expense solely for the income generated by our Chinese and Latvian operations.

For the three months ended September 30, 2016, we recorded income tax expense of approximately $265,000, which was higher than the income tax expense computed using the U.S. statutory federal tax rate primarily due to adjustments to the fiscal 2016 tax liability that were recorded during the three months ended September 30, 2016, related to both the U.S. and China tax jurisdictions. As of September 30, 2016, we had not yet acquired ISP Latvia, and most of our income was subject to the Chinese statutory income tax rate of 25%.