Income Taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized. As of June 30, 2015, the Company has established a full valuation allowance against all of its net deferred tax assets to the extent they will not be utilized to offset the gain and income from discontinued operations.

To the extent that a loss from continuing operations can be utilized to offset the income otherwise resulting from discontinued operations, it has been recognized as a tax benefit from continuing operations. To the extent that a loss or credit carryover can be utilized to offset the income from discontinued operations, it has been recognized as a tax benefit from discontinued operations.

For the fiscal year ended June 30, 2015, the Company incurred losses from continuing operations in the amount of $15.9 million. As a result, there was a reclassification of approximately $5.4 million of additional benefit to continuing operations and additional expense to discontinued operations as there was less benefit to the discontinued operations for the use of prior year Net Operating Losses (“NOLs”). The total effective tax rate for continuing operations is approximately 37% for the fiscal year.

The disposition of the ASO business resulted in the recognition of a taxable gain of approximately $25.2 million. The Company utilized losses generated during its current fiscal year, as well as loss carryovers and credits that are unrestricted by Internal Revenue Code (“IRC”) Section 382 (which limits the utilization of loss carryovers). For the year ended June 30, 2015, the gain was offset by losses incurred in the amount of $15.4 million; the remainder of the gain was offset by prior year NOLs. For the fiscal year, the net federal and state tax impact of the disposition gain (net of the losses incurred during the fiscal year ended June 30, 2015 and the tax attribute carryovers from prior years) is $0.2 million, which is the amount of Alternative Minimum Tax (“AMT”) incurred. There is no current state tax expense.

FASB ASC 740, Income Taxes (“FASB ASC 740”) addresses the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company has an unrecognized tax benefit of $0.1 million for the years ended June 30, 2015 and 2014.

For the years ended June 30, 2015 and 2014, the Company’s effective tax rate differed from the federal statutory rate of 35%, primarily due to recording changes to the valuation allowance placed against its net deferred tax assets.

Loss carryovers are generally subject to modification by tax authorities until three years after they have been utilized.

The components of income tax benefit from continuing operations are as follows (in thousands):



	Year Ended June 30,
	2015			2014
Current
Federal	$	(5,414	)	$	(3,620	)
State and local	(527		)	(528		)
Foreign	—			—
	$	(5,941	)	$	(4,148	)
Deferred
Federal	—			—
State and local	—			—
Foreign	—			—
Total tax benefit from continuing operations	$	(5,941	)	$	(4,148	)

The components of income tax expense from discontinued operations are as follows (in thousands):



	Year Ended June 30,
	2015		2014
Current
Federal	$	5,611	$	3,620
State and local	527		534
Foreign	—		—
	$	6,138	$	4,154
Deferred
Federal	—		—
State and local	—		—
Foreign	—		—
Total tax expense from discontinued operations	$	6,138	$	4,154

A reconciliation of the reported income tax expense (benefit) to the amount that would result by applying the U.S. Federal statutory rate to the income (loss) before income taxes to the actual amount of income tax expense (benefit) recognized follows (in thousands):



	Year Ended June 30,
	2015			2014
Expected expense (benefit)	$	(5,414	)	$	(3,666	)
State tax expense	—			6
Change in temporary tax adjustments not recognized	5,589			3,620
Other permanent items	22			46
Total	$	197		$	6

The Company’s deferred tax assets as of June 30, 2015 and 2014 consist of the following (in thousands):



	Year Ended June 30,
	2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	10,869		$	15,243
Alternative minimum tax credit carryforwards	868			671
Accrued expenses and other timing	912			929
Total gross deferred tax assets	$	12,649		$	16,843
Less — valuation allowance	(11,887		)	(16,009		)
Net deferred tax assets	$	762		$	834
Deferred tax liabilities:
Property and equipment, principally due to differences in depreciation	$	(762	)	$	(834	)
Total gross deferred tax liabilities	$	(762	)	$	(834	)
Net deferred tax assets (liabilities)	$	—		$	—

The valuation allowance decreased by approximately $4.1 million for the year ended June 30, 2015. The valuation allowance increased by approximately $2.5 million for the year ended June 30, 2014. The Company adjusted the value of its deferred tax assets (before valuation allowance) in order to reflect tax return filings occurring since the prior year provision. Since the Company reflects a full valuation allowance against its deferred tax assets, there has been no income tax impact from these changes.

At June 30, 2015, the Company had accumulated net operating loss carryforwards of approximately $31.1 million ($19.4 million was available at year end) for Federal income tax purposes ($10.9 million, tax effected) that are available to offset future regular taxable income. These net operating loss carryforwards expire between the years 2021 and 2034. Utilization of these net operating losses is limited due to the changes in stock ownership of the Company associated with the October 2007 Exchange Offer; as such, the benefit from these losses may not be realized.

The Company also has accumulated state net operating loss carryforwards of approximately $6.2 million ($0.3 million, tax effected) that are available to offset future state taxable income. These net operating loss carryforwards expire between the years 2031 and 2034. These losses may also be subject to utilization limitations; as such, the benefit from these losses may not be realized.

The Company has a temporary credit for business loss carryovers that may be utilized to offset its Texas margin tax. The credit amount is $0.5 million ($0.3 million, tax effected). These credits may be used to offset $13 thousand of state tax liability each year and will expire in 2027.

The Company has $0.9 million of alternative minimum tax credit carryforwards available to offset future regular tax liabilities.

The Company files consolidated returns for federal, California, Florida, and Texas income and franchise taxes. In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the net deferred tax assets will be utilized to offset future tax liabilities. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of June 30, 2015, the Company provided a full valuation allowance of approximately $11.9 million against its net deferred tax assets.

Uncertain Tax Positions

The Company’s change in uncertain tax benefit reserves during 2015 and 2014 were as follows (in thousands):



	2015		2014
Balance at July 1	$	72	$	68
Additions for tax positions of current period	—		—
Additions for tax positions of prior years	4		4
Decreases for tax positions of prior years	—		—
Balance at June 30	$	76	$	72

As of June 30, 2015, total uncertain tax positions related to state income taxes amounted to $76,000. Should the tax positions prove successful, the Company’s tax expense would be reduced by $49,000 (net of federal benefit). We recognize interest and penalties related to income tax matters in income tax expense. During each of the years ended June 30, 2015 and 2014, we recognized interest expense related to uncertain tax positions of approximately $4,000.