INCOME TAXES

The components of income tax expense (benefit) are as follows (in thousands):



	Year ended June 30,
	2018			2017		2016
Current:
Federal	$	—		$	—	$	—
State	29			4		24
Total Current	$	29		$	4	$	24

Deferred:
Federal	$	(8	)	$	—	$	—
State	—			—		—
Total Deferred	(8		)	—		—
Net Income Tax Expense	$	21		$	4	$	24

The reconciliation of the statutory income tax rate to the Company’s effective income tax rate for the fiscal years ended June 30, 2018, 2017 and 2016 is as follows :



	Year Ended June 30,
	2018		2017		2016
Statutory rate	27.6	%	34.0	%	34.0	%
State income taxes, net	(3.7	)%	(4.5	)%	(18.6	)%
Impact of 2017 tax reform	(107.0	)%	—	%	—	%
Meals and entertainment	(1.8	)%	(1.5	)%	38.7	%
Stock-based compensation	22.6	%	—	%	—	%
AMT and research and development credits	22.4	%	—	%	(218.9	)%
Other	(2.0	)%	0.2	%	1.5	%
Effective rate before valuation allowance	(41.9	)%	28.2	%	(163.3	)%
Change in valuation allowance	38.7	%	(28.5	)%	228.2	%
Effective tax rate	(3.2	)%	(0.3	)%	64.9	%

The statutory rate for the year ended June 30, 2018 is a blended rate which was calculated based on the Company's fiscal year and the date that the tax rate changes were effective.

A valuation allowance has been recorded to reduce the Company’s net deferred tax assets to an amount that is more likely than not to be realized and is based upon the uncertainty of the realization of certain federal and state deferred tax assets related to net operating loss carryforwards and other tax attributes. The establishment of valuation allowances requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets.

At June 30, 2018 and 2017, the significant components of deferred tax assets and liabilities are approximated as follows (in thousands):



	June 30,
	2018			2017
Deferred tax assets relating to:
Stock-based compensation	$	283		$	398
AMT and research and development credits	668			523
Deferred rent	58			77
Inventory	147			211
Professional fees	91			155
Accrued vacation	31			43
Accounts receivable allowance	26			49
Contribution carryovers	13			12
Net operating loss carryforwards	1,153			1,443
Total deferred tax assets	2,470			2,911
Deferred tax liabilities related to depreciable and amortizable assets	(587		)	(783		)
Net deferred tax assets before valuation allowance	1,883			2,128
Valuation allowance	(1,875		)	(2,128		)
Net deferred tax assets	$	8		$	—

At June 30, 2018, the Company had net operating loss carryforwards of $5.3 million, of which $4.7 million will expire, if unused, between June 30, 2032 and June 30, 2037. At June 30, 2018, the Company had various tax credit carryforwards of $0.7 million, of which $0.4 million will expire beginning on June 30, 2030 and $0.3 million related to alternative minimum tax credits which will be refunded as described below.

The Tax Cuts and Jobs Act of 2017, enacted on December 22, 2017, contains significant changes to U.S. tax law, including lowering the U.S. corporate income tax rate to 21% and repeal of the corporate alternative minimum tax for tax years beginning on or after January 1, 2018. Other provisions in the 2017 tax reform such as interest deductibility, changes to executive compensation plans, full expensing provisions for business assets, other new minimum taxes and international taxation modifications are not expected to have material implications to the Company's financial statements. Also, in December 2017, the SEC issued guidance on accounting for tax effects of the 2017 tax reform which provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the applicable accounting. In accordance with the guidance, a company must reflect the income tax effects of those aspects for which the accounting under the guidance is complete. To the extent that a company’s accounting for certain income tax effects is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. While we are able to make reasonable estimates of the impact of the reduction in corporate rate and the repeal of the corporate alternative minimum tax for tax years beginning on or after January 1, 2018, the final impact of the 2017 tax reform may differ from these estimates, due to, among other things, changes in our interpretations and assumptions, additional guidance that may be issued by the Internal Revenue Service ("IRS"), and actions we may take. We are continuing to gather additional information to determine the final impact.

The Company is required to recognize the impacts of the rate change on its deferred tax assets and liabilities in the period enacted. However, as the Company has a full valuation allowance on its net deferred tax asset, any deferred tax recognized due to the change in rate will be offset with a change in the valuation allowance. Therefore, there was no overall impact to the financial statements in the year ended June 30, 2018 due to this change in rate. However, the repeal of the corporate alternative minimum tax provides for existing alternative minimum tax credit carryovers to be refunded beginning in 2018 and available to offset deferred tax liabilities related to indefinite lived assets as described below. As such, most of the valuation allowance in place at June 30, 2018 related to these credits has been released on a provisional basis and a deferred asset recorded for the expected benefit in future years. During the year ended June 30, 2018, the Company recorded an $8,000 deferred tax asset in Other Assets on the balance sheet, representing the net benefit of remeasuring its deferred tax assets for recoverable alternative minimum tax credits pursuant to the 2017 tax reform in the amount of $245,000 offset by deferred tax liabilities related to indefinite lived assets, such as goodwill, in the amount of $237,000, which cannot be used as a source of future taxable income in evaluating the need for a valuation allowance against deferred tax assets. The Company's remaining net deferred tax assets continue to be fully offset by a valuation allowance. The Company's gross deferred tax assets and the offsetting valuation allowance decreased on a provisional basis by approximately $0.7 million as a result of the reduction of the U.S. tax rate to 21%.