7.	Income Taxes

Components of Provision (Benefit) for Income Taxes

The domestic and foreign components of income (loss) before the provision (benefit) for income taxes are as follows:

	Three Months Ended December 31,				Six Months Ended December 31,
	2015		2014		2015		2014

United States	$	(431)	$	(714)	$	2,323	$	(347)
Foreign		103		65		439		262
Income (loss) before income taxes	$	(328)	$	(649)	$	2,762	$	(85)

We recorded an income tax benefit for our domestic and foreign subsidiaries of $45 and income tax benefit of $106 during the three months ended December 31, 2015 and 2014, respectively, and an income tax benefit of $162 and income tax expense of $71 during the six months ended December 31, 2015 and 2014, respectively. The components of the provision (benefit) for income taxes are as follows:

	Three Months Ended December 31,				Six Months Ended December 31,
	2015		2014		2015		2014

United States	$	(159)	$	(288)	$	(410)	$	(138)
Foreign		114		182		248		209
Provision (benefit) for income taxes	$	(45)	$	(106)	$	(162)	$	71

For the three months ended December 31, 2015, the domestic tax benefit is lower than the prior year primarily due to (1) higher pretax book income in the U.S. offset by (2) a lower annual estimated tax rate on domestic operations in the current fiscal year compared to the prior year. The foreign tax expense is lower than the prior year primarily due to (1) lower pretax book income in Japan and the U.K and (2) a reduction in the statutory tax rate in Japan.

For the six months ended December 31, 2015, the domestic tax benefit is higher than the prior year primarily due to (1) the release of valuation allowance attributable to the tax impact of the gain on sale of our multi-screen video analytics product line and (2) a lower annual estimated tax rate on domestic operations in the current fiscal year compared to the prior year. Any other domestic differences are due to differences in projected pretax book income and permanent book/tax differences between the two periods. The foreign tax expense is higher than the prior year primarily due to (1) higher pretax book income in Japan offset by (2) a reduction in the statutory tax rate in Japan and (3) lower pretax book income in the U.K.

Net Operating Losses

As of June 30, 2015, we had U.S. federal net operating loss carryforwards of approximately $92,826 for income tax purposes, of which none expire in fiscal year 2016, and the remainder expire at various dates through 2034. We recently completed an evaluation of the potential effect of Section 382 of the Internal Revenue Code of 1986 (the “Code”) on our ability to utilize these net operating losses. The study concluded that we have not had an ownership change for the period from July 22, 1993 to December 31, 2015. If we experience an ownership change as defined in Section 382 of the Code, our ability to use these NOLs will be substantially limited, which could therefore significantly impair the value of that asset. The current three-year cumulative ownership change as of December 31, 2015 increased to 36.0% from 29.7% at June 30, 2015.

As of June 30, 2015, we have state NOLs of $52,310 and foreign NOLs of $28,153. The state NOLs expire between fiscal year 2015 and fiscal year 2035. The foreign NOLs expire according to the rules of each country. Currently, all jurisdictions in which the Company has foreign NOLs are not subject to expiration due to indefinite carryforward periods.

Valuation Allowance

Realization of our deferred tax assets is dependent primarily on the generation of future taxable income. In considering the need for a valuation allowance, we consider our historical and future projected operations along with other positive and negative evidence in assessing if sufficient future taxable income will be generated to use the existing deferred tax assets. The following summarizes our conclusions on the need for a valuation allowance in each jurisdiction as of December 31, 2015:

U.S. - For the six months ended December 31, 2015, we sold the assets associated with our multi-screen video analytics product line, generating a gain of $4,116. This realized gain will now allow us to utilize an additional amount of valuation allowance that we were unable to consider in our estimate of future earnings at the end of fiscal year 2015. We recognized a release of $1,355 of the valuation allowance on federal and state NOLs that will be used to offset this gain. Other than this discrete item in fiscal year 2016, we do not believe that there has been a significant change in our business in the U.S. that would require a reassessment of our conclusion at the end of fiscal year 2015 with regard to the valuation allowance. We will continue to evaluate our assumptions each quarter regarding the need for a valuation allowance and will make appropriate adjustments as necessary.

U.K. - During our fiscal year 2014, a change in U.K. tax law relative to treatment of research and development expenses allowed us to release $214 of valuation allowances against deferred tax assets that we believe are now realizable as a result of the current period tax law change. We believe that in light of this law change, we will now generate sufficient taxable income to fully utilize our net deferred tax assets in the U.K.

Japan - Our subsidiary in Japan has a long history of profitable operations, and we continue to project profitability in Japan for the foreseeable future. Therefore, we continue to believe that we will fully realize the net deferred tax assets in Japan, and no valuation allowance is needed.

Other Foreign Jurisdictions - We also evaluated the need for a continued full valuation allowance against our foreign deferred tax assets in other jurisdictions. We concluded that a full valuation allowance against our deferred tax assets for other foreign jurisdictions was warranted due to, among other reasons, (i) the realized cumulative accounting losses, (ii) our long history of taxable losses and (iii) our uncertainty with respect to generating future taxable income in the near term given our recently completed projections and other inherent uncertainties in our business.

Each quarter, we assess the total weight of positive and negative evidence and evaluate whether release of all or any portion of the valuation allowance is appropriate. Should we come to the conclusion that a release of our valuation allowances is required, or that additional valuation allowance is required, there could be a significant increase or decrease in net income and earnings per share in the period of release, or the additional valuation allowance, due to the impact on the tax rate.

Unrecognized Tax Benefits

The Company has evaluated its unrecognized tax benefits and determined that there has not been a material change in the amount of such benefits for the six months ended December 31, 2015.