NOTE

— INCOME TAXES

The following information is provided for the years ended

June

30:

(In thousands)	2018			2017			2016
Components of income before income taxes:
United States	$	(23,332	)	$	3,080		$	14,004
Foreign		—			—			—
Income before income taxes	$	(23,332	)	$	3,080		$	14,004

Provision for income taxes:
Current
U.S. federal	$	922		$	800		$	5,056
State and local		35			59			582
Total current		957			859			5,638

Deferred		(4,748	)		(779	)		(1,116	)
Total provision for income taxes	$	(3,791	)	$	80		$	4,522

(In thousands)	2018			2017			2016
Reconciliation to federal statutory rate:
Federal statutory tax rate		27.6	%		34.0	%		35.0	%
State and local taxes, net of federal benefit		1.1			2.4			2.2
Federal and state tax credits		0.9			(5.3	)		(2.6	)
Valuation allowance		3.5			(18.9	)		—
Domestic production activities deduction		0.6			(4.1	)		(4.2	)
Uncertain tax position activity		0.4			(5.5	)		(0.6	)
Shared based compensation		(1.3	)		0.0			2.5
Tax rate changes		(14.2	)		—			—
Other		(2.3	)		—			—
Effective tax rate		16.3	%		2.6	%		32.3	%

The Tax Cuts and Jobs Act (the “Act”) was signed into law in

December 2017

and makes numerous changes to the Internal Revenue Code. Among other changes, the Act reduces the U.S. corporate income tax rate to

21%

effective

January 1, 2018.

Because the Act became effective mid-way through the Company’s tax year, the Company will have a U.S. statutory income tax rate of

27.6%

for fiscal

2018

and will have a

21%

U.S statutory income tax rate for fiscal years thereafter. During the year ended

June 30, 2018,

the Company recognized a net deferred tax expense of

$3,322,991

as a result of the revaluation of its deferred tax balances due to the tax rate changes caused by the Act. The company completed its accounting for the income tax effects of the Act during the year ended

June 30, 2018.

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

June

30,

2018

and

2017

are as follows:

(In thousands)	2018			2017

Uncertain tax positions	$	119		$	281
Reserves against current assets		1,348			584
Accrued expenses		2,028			3,357
Deferred compensation		402			925
Stock-based compensation		1,296			1,824
State net operating loss carryover and credits		2,194			1,853
Long term capital loss carryforward		2,555			3,703
Goodwill, acquisition costs and intangible assets		4,728			(502	)
U.S. Federal net operating loss carryover and credits		232			406
Deferred income tax asset before valuation allowance		14,902			12,431

Valuation allowance		(4,749	)		(5,556	)
Deferred income tax asset		10,153			6,875

Depreciation		(2,045	)		(3,515	)
Deferred income tax liability		(2,045	)		(3,515	)

Net deferred income tax asset	$	8,108		$	3,360

As of

June 30, 2018

and

2017,

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

$232,000

and

$406,000,

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.

Also related to the acquisition of Virticus, the Company has recorded a deferred income tax asset in the amount of

$108,000

and

$137,000,

for fiscal years

2018

and

2017,

respectively, related to a state net operating loss carryover and a state research and development credit in Oregon. 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.

The deferred income tax asset and the valuation reserve amounts changed in fiscal

2018

due to the revaluation of the deferred items under the Tax Cuts and Jobs Act (TCJA).

As of

June

30,

2018

and

2017,

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

$2,086,000

and

$1,716,000,

respectively, 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, 2018

and

2017,

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

$2,086,000

and

$1,716,000,

respectively. The deferred state income tax asset and valuation reserve amounts were revalued in fiscal

2018

as a result of the TCJA.

During fiscal

2015,

the Company generated a capital loss of

$11,972,000

from the sale of a Canadian subsidiary. The Company utilized

$1,192,000

of the capital loss carryover in fiscal

2017.

The remaining capital loss carryover of

$10,780,000

has a full valuation allowance established against the deferred tax asset of

$2,555,000

because the Company has

expectation of generating capital gains to utilize the loss before it expires in

June 30, 2020.

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

$4,749,000

and

$5,556,000

as of

June

30,

2018

and

2017,

respectively.

June

30,

2018,

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

$651,000,

$259,000,

and

$159,000

respectively, of the total reserve for uncertain tax positions of

$1,069,000.

The entire uncertain tax position of

$651,000,

net of federal tax benefit, would impact the effective tax rate if recognized. The liability for uncertain tax position is primarily included in Other Long-Term Liabilities, the remainder of

$322,000

is included as a current tax receivable. 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.

The entire uncertain tax position of

$657,000,

net of federal tax benefit, would impact the effective tax rate if recognized. During fiscal

2017,

the Company added uncertain tax positions, including interest and penalties as a result of the acquisition of Atlas totaling

$483,000,

which is included in the

$1,119,000

above.

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 Company recognized a

$20,000

net tax benefit in fiscal

2018,

$78,000

net tax benefit in fiscal

2017,

and a

$26,000

net tax benefit in fiscal

2016

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

$9,000

and

$35,000,

respectively, in fiscal

2018,

$66,000

and

$27,000,

respectively, in fiscal

2017,

and

$48,000

and

$10,000,

respectively in fiscal

2016.

The reserve for uncertain tax positions is

not

expected to change significantly in the next

twelve

months.

The fiscal

2018,

2017

and

2016

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

(in thousands)	2018			2017			2016

Balance at beginning of the fiscal year	$	842		$	648		$	687
Decreases — tax positions in prior period		(185	)		(170	)		(161	)
Increases — tax positions in current period		41			50			122
Increases – tax positions in prior period		42			314			—
Settlements and payments		(4	)		—			—
Lapse of statute of limitations		—			—			—
Balance at end of the fiscal year	$	736		$	842		$	648

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,

2015.

The Company is currently under audit by the Internal Revenue Service for the tax year ended

June 30, 2016.

The audit is in its preliminary stages.