Note

. Income Taxes

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial accounting purposes and the amounts used for income tax reporting. Significant components of the Company

’s deferred tax assets are as follows:

	June 30,
	2017			2016
Deferred Tax Assets
Net operating loss	$	13,314		$	13,967
Capital loss carryover		31			31
Valuation adjustment on investment in iBio, Inc.		707			695
Depreciation		(269	)		(166	)
Inventory		139			156
Change in estimated fair value of derivative liability		201			31
Other		94			-
Valuation allowance		(13,394	)		(14,714	)
Total deferred tax asset, net	$	823		$	-

Net operating losses (“NOL”) of approximately

$35,600

will expire beginning in

2024

for federal purposes. State NOL’s of approximately

$15,200

expire beginning in

2017

through

2032

depending on the state in which the NOL’s were generated. The Company also has capital losses of

$77

which expire in

2020.

The Company files a consolidated U.S. federal income tax return; however, the various state tax returns are filed on a stand-alone basis for the Company and its subsidiaries. MDC has fully utilized its state NOL’s resulting in taxable income on a state level basis.

Realization of the NOL carryforwards and other deferred tax temporary differences is contingent on future taxable earnings. The Company

’s deferred tax asset was reviewed for expected utilization using a “more likely than

not”

approach by assessing the available positive and negative evidence surrounding its recoverability.

Accordingly, a valuation allowance has been recorded against the Company’s deferred tax asset, as it was determined based upon past taxable losses and inconsistent taxable income in the past few years, that it was “more likely than

not”

that the Company’s deferred tax assets would

not

be realized. The valuation allowance was increased to the full carrying amount of the Company’s deferred tax assets in the fiscal year ended

June 30, 2009.

As of

June 30, 2017,

management determined that certain of the Company’s deferred tax assets were “more likely than

not”

to be realizable and the Company recognized a deferred tax benefit of approximately

$0.8

million related to the release of the valuation allowance on those assets. The Company will continue to assess and evaluate strategies that will enable the deferred tax asset, or portion thereof, to be utilized, and will reduce the valuation allowance appropriately at such time when it is determined that the “more likely than

not”

criteria is satisfied.

The components of the provision for income taxes consists of the following:

	For the fiscal year
	ended June 30,
	2017			2016

Current - Federal	$	30		$	20
Current - State and local		306			211
Deferred - Federal and state		495			114
Change in valuation allowance		(1,321	)		(114	)
Income tax (benefit) expense, net	$	(490	)	$	231

A reconciliation of the statutory tax rate to the effective tax rate is as follows:

	For the fiscal year
	ended June 30,
	2017			2016
Statutory federal income tax rate		34	%		34	%
Statutory state income tax rate		6	%		6	%
Effective state income tax rate		10	%		12	%
Change in valuation allowance		(79	)%		(36	)%
Non-deductible expenses		3	%		3	%
Effective income tax rate		(26	)%		19	%

There were

significant uncertain tax positions taken, or expected to be taken, in a tax return that would be determined to be an unrecognized tax benefit taken or expected to be taken in a tax return that should have been recorded on the Company

’s consolidated financial statements for the year ended

June 30, 2017.

Additionally, there were

interest or penalties outstanding as of or for each of the fiscal years ended

June 30, 2017

and

2016.

The latest

three

years of Federal and

four

years of state tax returns filed for the fiscal years ended through

June 30, 2016

are currently open. The tax returns for the year ended

June 30, 2017

will be filed by

March 15, 2018.