NOTE

— INCOME TAXES

The following information is provided for the years ended

June

30:

(In thousands)	2017			2016			2015
Components of income before income taxes:
United States	$	3,080		$	14,004		$	7,697
Foreign		—			—			(183	)
Income before income taxes	$	3,080		$	14,004		$	7,514

Provision for income taxes:
Current
U.S. federal	$	800		$	5,056		$	2,364
State and local		59			582			237
Foreign		—			—			(12	)
Total current		859			5,638			2,589

Deferred		(779	)		(1,116	)		(226	)
Total provision for income taxes	$	80		$	4,522		$	2,363

(In thousands)	2017			2016			2015
Reconciliation to federal statutory rate:
Federal statutory tax rate		34.0	%		35.0	%		34.0	%
State and local taxes, net of federal benefit		2.4			2.2			2.4
Impact of foreign operations		—			—			0.7
Federal and state tax credits		(5.3	)		(2.6	)		(3.7	)
Valuation allowance		(18.9	)		—			(3.8	)
Domestic production activities deduction		(4.1	)		(4.2	)		(4.0	)
Uncertain tax position activity		(5.5	)		(0.6	)		(1.3	)
Other		0.0			2.5			2.1
Sale of subsidiary		—			—			5.0
Effective tax rate		2.6	%		32.3	%		31.4	%

The components of deferred income tax assets and (liabilities) at

June

30,

2017

and

2016

are as follows:

(In thousands)	201 7			2016

Uncertain tax positions	$	281		$	—
Reserves against current assets		584			679
Accrued expenses		3,357			3,690
Deferred compensation		925			842
Stock-based compensation		1,824			1,473
State net operating loss carryover and credits		1,853			1,878
Long term capital loss carryforward		3,703			4,272
U.S. Federal net operating loss carryover and credits		406			456
Deferred income tax asset before valuation reserve		12,933			13,290
Valuation reserve		(5,556	)		(6,150	)

Deferred income tax asset		7,377			7,140

Depreciation		(3,515	)		(4,270	)
Goodwill, acquisition costs and intangible assets		(502	)		(289	)
Deferred income tax liability		(4,017	)		(4,559	)

Net deferred income tax asset	$	3,360		$	2,581

As of

June 30, 2017

and

2016,

the Company has recorded a deferred tax asset in the amount of

$406,000

and

$456,000,

respectively, related to U.S. Federal net operating loss and research and development credit carryovers acquired in the acquisition of Virticus Corporation. The net operating losses will expire over a period of

years, beginning in

June 30, 2029.

The research and development credits will expire over a period of

years, beginning in

June 30, 2029.

The annual utilization is limited by Internal Revenue Code Section

382.

However, the Company has determined these assets, more likely than

not,

will be realized.

As of

June

30,

2017

and

2016,

the Company has recorded a deferred state income tax asset in the amount of

$1,716,000,

net of federal tax benefits, related to non-refundable New York state tax credits. These credits do

not

expire, but pursuant to New York state legislation enacted in fiscal

2014,

the Company has determined that this asset, more likely than

not,

will

not

be realized. As of

June 30, 2017

and

2016,

the Company has recorded a full valuation reserve in the amount of

$1,716,000.

There was

change in the deferred state income tax asset or related valuation reserve in fiscal

2017.

As of

June 30, 2017

and

2016,

the Company has recorded a deferred state income tax asset in the amount of

$137,000

and

$162,000,

respectively

, related to a state net operating loss carryover and a state research and development credit in Oregon acquired during the acquisition of Virticus Corporation. The Company has determined this asset more likely than

not,

will

not

be realized and that a full valuation reserve is required. The Oregon net operating loss will expire over a period of

years, beginning in

June 30, 2027.

Related to the Oregon research and development credit,

$11,000

expired during fiscal

2016

and the remaining balance of

$25,000

expired during fiscal

2017.

During fiscal

2015,

the Company recorded a deferred tax asset related to the sale of its Canadian subsidiary creating a long term capital loss carryforward totaling

$4,272,000.

The Company previously determined that this asset, more likely than

not,

will

not

be realized within the

year carryforward period and that a full valuation reserve was required. In fiscal

2017

the Company sold its Kansas City facility that generated a long term capital gain. The capital loss carryforward related to the sale of the Canadian subsidiary will offset the long term gain from the sale of the Kansas City facility. The utilization of the capital loss carryforward will reduce the deferred tax asset with its corresponding full valuation allowance to

$3,703,000.

The long term capital loss carryforward will expire in

June 30, 2020.

Considering all issues discussed above, the Company has recorded valuation reserves of

$5,556,000

and

$6,150

,000

as of

June

30,

2017

and

2016,

respectively.

The Company accounts for uncertain tax positions in accordance with accounting standards. At

June

30,

2017,

tax, interest, and penalties, net of potential federal tax benefits, were

$657,000,

$268,000,

and

$194,000,

respectively, of the total reserve for uncertain tax positions of

$1,119,000.

Of the

$1,119,000

reserve for uncertain tax positions,

$925,000

would have an unfavorable impact on the effective tax rate if recognized. During fiscal

2017,

the Company added uncertain tax positions as a result of the acquisition of Atlas totaling

$483,000,

which is included in the

$1,119,000

above. Tax, interest, and penalties, net of potential federal tax benefits were

$314,000,

$79,000,

and

$90,000,

respectively. At

June

30,

2016,

tax, interest, and penalties, net of potential federal tax benefits, were

$421,000,

$244,000,

and

$142,000

respectively, of the total reserve for uncertain tax positions of

$807,000.

Of the

$807,000

reserve for uncertain tax positions,

$665,000

would have an unfavorable impact on the effective tax rate if recognized. The liability for uncertain tax positions is included in Other Long-Term Liabilities.

The Company recognized a

$78,000

net tax benefit in fiscal

2017,

$26,000

net tax benefit in fiscal

2016,

and a

$40,000

net tax benefit in fiscal

2015

related to the change in reserves for uncertain tax positions. The Company recognized interest net of federal benefit and penalties of

$66,000

and

$27,000,

respectively, in fiscal

2017,

$48,000

and

$10,000,

respectively, in fiscal

2016,

and

$41,000

and

$17,000,

respectively in fiscal

2015.

The Company is recording estimated interest and penalties related to potential underpayment of income taxes as a component of tax expense in the Consolidated Statements of Operations. The reserve for uncertain tax positions is

not

expected to change significantly in the next

twelve

months.

The fiscal

2017,

2016

and

2015

tax activity in the liability for uncertain tax positions was as follows:

(in thousands)	201 7			2016			2015

Balance at beginning of the fiscal year	$	648		$	687		$	746
Decreases — tax positions in prior period		(170	)		(161	)		(134	)
Increases — tax positions in current period		50			122			75
Increases — tax positions in prior period		314			—			—
Settlements and payments		—			—			—
Lapse of statute of limitations		—			—			—
Balance at end of the fiscal year	$	842		$	648		$	687

The Company files a consolidated federal income tax return in the United States, and files various combined and separate tax returns in several state and local jurisdictions. With limited exceptions, the Company is

longer subject to U.S. Federal, state and local tax examinations by tax authorities for fiscal years ending prior to

June

30,

2014.