INCOME TAXES

The Company has significant deferred tax assets, a substantial amount of which result from operating loss carryforwards. The Company routinely evaluates its ability to realize the benefits of these assets to determine whether it is more likely than not that such benefit will be realized. In periods prior to the year ended June 30, 2014, the Company’s evaluation of its ability to realize the benefit from its deferred tax assets resulted in a full valuation allowance against such assets. Based upon earnings performance that the Company had achieved along with the belief that such performance would continue into future years, the Company determined during the year ended June 30, 2014 that it was more likely than not that a substantial portion of its deferred tax assets would be realized with approximately $64 million of its operating loss carryforwards being utilized to offset corresponding future years’ taxable income resulting in a reduction in its valuation allowances recorded in prior years. However, due to the adjustments to earnings and management's reassessment of the underlying factors it uses in estimating future taxable income, and in accordance with the history of losses generated, the Company believes that for the year ended June 30, 2016 and onward, it is more likely than not that its deferred tax assets will not be realized. Accordingly, the Company re-established a full valuation allowance on its net deferred tax assets.

The (provision) benefit for income taxes for the years ended June 30, 2019, 2018 and 2017 is comprised of the following:



	Year ended June 30,
($ in thousands)	2019			2018			2017 (As Restated)
Current:
Federal	$	—		$	(22	)	$	(2	)
State	(269		)	(60		)	(31		)
Total current	(269		)	(82		)	(33		)
Deferred:
Federal	(11		)	183			(58		)
State	18			—			(4		)
Total deferred	7			183			(62		)
Total income tax (provision) benefit	$	(262	)	$	101		$	(95	)

On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was signed into law. Substantially all of the provisions of the Act are effective for taxable years beginning after December 31, 2017. The Act includes significant changes to the Internal Revenue Code of 1986 (as amended, the “Code”), including amendments which significantly change the taxation of individuals and business entities. The Act contains numerous provisions impacting the Company, the most significant of which reduces the Federal corporate statutory tax rate from 34% to 21%, as well as the elimination of the corporate alternative minimum tax ("AMT") and changing how existing AMT credits can be realized, the creation of a new limitation on deductible interest expense, and the change in rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

The various provisions under the Act deemed most relevant to the Company have been considered in preparation of its financial statements as of June 30, 2019 and 2018. To the extent that clarifications or interpretations materialize in the future that would impact upon the effects of the Act incorporated into the June 30, 2019 and 2018 financial statements, those effects will be reflected in the future as or if they materialize.

The benefit for income taxes for the year ended June 30, 2018 was $0.1 million, which included a benefit of $0.1 million due to the ability to recognize additional deferred tax assets related to the Company's alternative minimum tax credit as a result of the Act.

A reconciliation of the (provision) benefit for income taxes for the years ended June 30, 2019, 2018 and 2017 to the indicated (provision) benefit based on income (loss) before (provision) benefit for income taxes at the federal statutory rate of 21.0% for the fiscal year ended June 30, 2019, 27.5% for the fiscal year ended June 30, 2018 and 34% for the fiscal year ended June 30, 2017 is as follows:



	Year ended June 30,
($ in thousands)	2019			2018			2017 (As Restated)
Indicated (provision) benefit at federal statutory rate	$	6,671		$	3,131		$	2,506
Effects of permanent differences
Stock compensation	(140		)	(46		)	—
Warrants	—			—			(507		)
Acquisition related costs	—			(759		)	—
Other permanent differences	(76		)	(157		)	(137		)
State income taxes, net of federal benefit	663			448			174
Income tax credits	—			—			60
Changes related to prior years	—			(7		)	8
Changes in valuation allowances	(7,319		)	(2,544		)	(2,199		)
Other	(61		)	35			—
	$	(262	)	$	101		$	(95	)

At June 30, 2019, the Company had federal and state operating loss carryforwards of approximately $155 million and $194 million, respectively, to offset future taxable income. The timing and extent to which the Company can utilize operating loss carryforwards in any year may be limited because of provisions of the Internal Revenue Code regarding changes in ownership of corporations (i.e. IRS Code Section 382). Federal and state operating loss carryforwards start to expire in 2022 and 2020, respectively.

The net deferred tax assets arose primarily from net operating loss carryforwards, as well as the use of different accounting methods for financial statement and income tax reporting purposes as follows:



	As of June 30,
($ in thousands)	2019			2018
Deferred tax assets:
Net operating loss carryforwards	$	38,486		$	35,562
Asset reserves	7,211			4,906
Deferred research and development	1,448			1,084
Stock-based compensation	418			661
Other	983			778
	48,546			42,991
Deferred tax liabilities:
Intangibles	(6,203		)	(6,864		)
Deferred tax assets, net	42,343			36,127
Valuation allowance	(42,414		)	(36,194		)
Deferred tax liabilities, net of allowance	$	(71	)	$	(67	)

As of June 30, 2019, the Company had total unrecognized income tax benefits of $0.2 million related to its nexus in certain state tax jurisdictions. If recognized in future years, $0.2 million of these currently unrecognized income tax benefits would impact the income tax provision and effective tax rate. The Company is actively working with the taxing authorities related to the majority of this uncertain tax position and it is reasonably possible that a majority of the uncertain tax position will be settled within the next 12 months. The following table summarizes the activity related to unrecognized income tax benefits:



	Year ended June 30,
($ in thousands)	2019		2018		2017
Balance at the beginning of the year	$	—	$	—	$	—
Gross increases and decreases related to current period tax positions	180		—		—
Accrued interest and penalties	30		—		—
Balance at the end of the year	$	210	$	—	$	—

The Company records accrued interest as well as penalties related to uncertain tax positions in selling, general and administrative expenses. As of June 30, 2019 the Company had recorded $30 thousand of accrued interest and penalties related to uncertain tax positions on the Consolidated Balance Sheet.