NOTE

— INCOME TAXES

The following information is provided for the years ended

June

30:

(In thousands)	2020			2019

Components of income (loss) before income taxes:
United States	$	11,494		$	(23,005	)
Foreign		199			737
Income (loss) before income taxes	$	11,693		$	(22,268	)

Provision for income taxes
U.S. Federal	$	(2,082	)	$	88
Foreign		83			221
State and local		175			132
Total current		(1,824	)		441

Deferred		3,925			(6,370	)
Total provision for income taxes	$	2,101		$	(5,929	)

(In thousands)	2020			2019
Reconciliation to federal statutory rate:
Federal statutory rate		21.0	%		21.0	%
State and local taxes, net of federal benefit		2.0			3.3
Foreign operations		0.4			(0.3	)
Federal tax credits		(0.7	)		0.8
Valuation allowance		(13.4	)		3.8
Expiration of capital loss carryforward		8.9			-
Uncertain tax position activity		(0.5	)		0.3
Stock-based compensation		3.6			(1.3	)
Tax rate changes		(5.4	)		(0.2	)
Other		2.1			(0.8	)
Effective tax rate		18.0	%		26.6	%

The favorable tax rate change for the year ended

June 30, 2020

is due to the enactment of the CARES Act. The CARES Act allows the Company to carryback a federal net operating loss to prior tax years, offset taxable income in those earlier tax years, and obtain a refund of income taxes that were paid at a higher statutory tax rate.

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

June

30,

2020

and

2019

are as follows:

(In thousands)	2020			2019

Uncertain tax positions	$	125		$	128
Reserves against current assets		798			1,800
Accrued expenses		2,196			1,722
Interest		-			388
Deferred compensation		235			308
Stock-based compensation		597			926
State net operating loss carryover and credits		2,194			2,374
Long term capital loss carryforward		-			2,555
Right of use asset		1,992			-
Goodwill, acquisition costs and intangible assets		8,040			8,949
U.S. Federal net operating loss carryover and credits		217			1,139
Deferred income tax asset before valuation allowance		16,394			20,289

Valuation allowance		(2,194	)		(3,820	)
Deferred income tax asset		14,200			16,469

Depreciation		(1,837	)		(2,169	)
Lease liability		(1,992	)		-
Deferred income tax liability		(3,829	)		(2,169	)

Net deferred income tax asset	$	10,371		$	14,300

The Company has deferred tax assets for US federal net operating loss carry forwards of

$0.1

million and

$0.9

million at

June 30, 2020

and

June 30, 2019,

respectively. The

$0.1

million was acquired from Virticus Corporation and will expire over a

-year period beginning in

June 30, 2029.

The acquired federal net operating loss is subject to Internal Revenue Code Section

382.

The Company has determined, more likely than

not,

the amount will be realized before expiration.

The Company has deferred tax assets for research and development credits of

$0.1

million and

$0.2

million, at

June 30, 2020

and

June 30, 2019,

respectively. Of the

$0.1

million,

$45,000

will expire on

June 30, 2039

and the remainder, which was acquired from Virticus Corporation, will expire over a

-year period beginning

June 30, 2029.

The acquired credit is limited by Internal Revenue Code Section

382.

The Company has determined, more likely than

not,

the amount will be realized before expiration.

The Company has state net operating loss carryovers and credits of

$2.4

million at both

June 30, 2020

and

June 30, 2019.

The amount recognized in fiscal

2020

relates to net deferred tax assets of

$0.1

million from various state net operating losses.

Also related to the acquisition of Virticus Corporation, the Company has recorded a deferred state income tax asset related to a state net operating loss carryover and a state research and development credit in Oregon in the amount of

$0.1

million for both fiscal years

2020

and

2019.

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 Company has recorded a deferred state income tax asset net of federal tax benefits related to non-refundable New York state tax credits in the amount of

$2.1

million at both

June 30, 2020

and

June 30, 2019.

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, 2020,

and

2019,

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

$2.1

million.

The Company had a capital loss carry forward of

$10.7

million at

June 30, 2019

that was generated from the sale of a Canadian subsidiary during fiscal

2015.

During fiscal

2020,

the Company sold its North Canton, Ohio and New Windsor, New York facilities, resulting in taxable capital gain and expects to use

$6.6

million of the capital loss carry forward to offset the gain. The remaining capital loss carryforward of

$4.2

million expired unused. The Company recognized the tax benefits of utilizing the capital loss of

$0.6

million and

$0.8

million in the fiscal years

2020

and

2019

by releasing the related valuation allowance.

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

$2.2

million and

$3.8

million as of

June

30,

2020

and

2019,

respectively.

June

30,

2020,

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

$0.5

million,

$0.3

million, and

$0.1

million, respectively, of the total reserve for uncertain tax positions of

$0.9

million. The entire uncertain tax position of

$0.5

million, net of federal tax benefit, would impact the effective tax rate if recognized. At

June

30,

2019,

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

$0.6

million,

$0.2

million and

$0.2

million, respectively, of the total reserve for uncertain tax positions of

$1.0

million. The entire uncertain tax position of

$0.6

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

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

$0.1

million net tax benefit in both fiscal

2020

and fiscal

2019,

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

and

$13,000,

respectively, in fiscal

2020

and

$14,000

and

$7,000,

respectively, in fiscal

2019.

The reserve for uncertain tax positions is

not

expected to change significantly in the next

twelve

months.

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

(In thousands)	2020			2019

Balance at the beginning of the fiscal year	$	675		$	736
Decreases - tax positions in prior period		(70	)		(120	)
Increase - tax positions in current period		15			59
Increases - tax positions in prior period		-			-
Settlements and payments		(13	)		-
Lapse of statute of limitations		-			-
Balance at end of the fiscal year		607			675

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 and Mexico. 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,

2017.