INCOME TAXES

12 Months Ended

Jun. 30, 2020

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 benefit (provision) for income taxes for the years ended June 30, 2020, 2019 and 2018 is comprised of the following:



	Year ended June 30,
($ in thousands)	2020			2019			2018
Current:
Federal	$	126		$	—		$	(22	)
State	(57		)	(269		)	(60		)
Total current	69			(269		)	(82		)
Deferred:
Federal	(156		)	(11		)	183
State	86			18			—
Total deferred	(70		)	7			183
Total income tax (provision) benefit	$	(1	)	$	(262	)	$	101

On March 27, 2020, in response to COVID-19 and its detrimental impact to the global economy, President Trump signed the CARES Act into law, which provides a stimulus to the U.S. economy in the form of various individual and business assistance programs as well as temporary changes to existing tax law. The changes to the provision in business tax laws include a five-year net operating loss carryback for the 2018, 2019 and 2020 tax years, a deferral of the employer’s portion of the social security tax, and an increase in the interest expense limitation under Section 163(j) from 30% to 50% for the 2019 and 2020 tax years, among other things. The CARES Act did not have a material impact on the Company’s income taxes. The Company will continue to monitor for additional legislation related to COVID-19 and its impact on our results of operations.

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, 2020 and 2019. 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, 2020 and 2019 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 benefit (provision) for income taxes for the years ended June 30, 2020, 2019 and 2018 to the indicated benefit (provision) based on income (loss) before benefit (provision) for income taxes at the federal statutory rate of 21.0% for the fiscal year ended June 30, 2020 and for the fiscal year ended June 30, 2019 and 27.5% for the fiscal year ended June 30, 2018 is as follows:



	Year ended June 30,
($ in thousands)	2020			2019			2018
Indicated benefit (provision) at federal statutory rate	$	8,514		$	6,671		$	3,131
Effects of permanent differences
Stock compensation	(226		)	(140		)	(46		)
Acquisition related costs	—			—			(759		)
Other permanent differences	(106		)	(76		)	(157		)
State income taxes, net of federal benefit	1,393			663			448
Changes related to prior years	489			—			(7		)
Changes in valuation allowances	(10,139		)	(7,319		)	(2,544		)
Other	74			(61		)	35
	$	(1	)	$	(262	)	$	101

At June 30, 2020, the Company had federal and state operating loss carryforwards of approximately $182 million and $221 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 certain state operating loss carryforwards are currently expiring.

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)	2020			2019
Deferred tax assets:
Net operating loss carryforwards	$	45,670		$	38,486
Asset reserves	8,534			7,211
Deferred research and development	1,625			1,448
Stock-based compensation	668			418
Other	1,485			983
	57,982			48,546
Deferred tax liabilities:
Intangibles	(5,566		)	(6,203		)
Deferred tax assets, net	52,416			42,343
Valuation allowance	(52,553		)	(42,414		)
Deferred tax liabilities	$	(137	)	$	(71	)

As of June 30, 2020, 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 following table summarizes the activity related to unrecognized income tax benefits:



	Year ended June 30,
($ in thousands)	2020			2019		2018
Balance at the beginning of the year	$	210		$	—	$	—
Gross increases and decreases related to current period tax positions	—			180		—
Gross increases and decreases related to prior period tax positions	(3		)	—		—
Accrued interest and penalties	—			30		—
Balance at the end of the year	$	207		$	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, 2020 the Company had recorded $30 thousand of accrued interest and penalties related to uncertain tax positions on the Consolidated Balance Sheet.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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