Income Taxes

6 Months Ended

Dec. 31, 2018

15.

Income Taxes

The components of income tax benefit are as follows (in thousands):

	Six Months Ended December 31,		Year Ended June 30,
	2018		2018		2017		2016
U.S. operations:
Current income tax expense	$	—	$	—	$	—	$	4
Deferred income tax benefit		—		—		—		—
		—		—		—		4
Non-U.S. operations:
Current income tax benefit		—		—		—		(159	)
Deferred income tax benefit		—		—		—		—
		—		—		—		(159	)
Income tax benefit	$	—	$	—	$	—	$	(155	)

During the fiscal year ended June 30, 2016, the Company recognized a current income tax benefit of $159,000 related to foreign research and development tax credits earned by its U.K. subsidiary.

The components of loss before income taxes are as follows (in thousands):

	Six Months Ended December 31,			Year Ended June 30,
	2018			2018			2017			2016
U.S. operations	$	(44,804	)	$	(53,000	)	$	(17,566	)	$	(19,780	)
Non-U.S. operations		84			(171	)		(919	)		(1,922	)
Loss before income taxes	$	(44,720	)	$	(53,171	)	$	(18,485	)	$	(21,702	)

On December 22, 2017, the

Tax Cuts and Jobs Act

(the “Tax Act”) was signed into law, making significant changes to the federal tax law. Amongst other things, the Tax Act reduces the federal corporate tax rate from 34% to 21% effective for tax years beginning after December 31, 2017 and has resulted in a remeasurement of the Company’s deferred tax assets included in the Company’s fiscal 2018 rate reconciliation.

The difference between the Company’s expected income tax benefit, as computed by applying the blended statutory U.S. federal tax rate of 21% for the six months ended December 31, 2018,

27.5

% for fiscal 2018 and

% for each of fiscal 2017 and fiscal 2016 to loss before income taxes, and actual income tax benefit is reconciled in the following table (in thousands):

	Six Months Ended December 31,			Year Ended June 30,
	2018			2018			2017			2016
Income tax benefit at statutory rate	$	(9,391	)	$	(14,622	)	$	(6,284	)	$	(7,379	)
State income taxes, net of federal benefit		(1,657	)		(1,552	)		(928	)		(1,044	)
Non-U.S. income tax rate differential		186			(66	)		(121	)		778
Change in fair value of derivative		3,900			7,227			—			—
Change in federal tax rate		—			14,673			—			—
Research and development tax credits		(231	)		(284	)		(242	)		(397	)
Permanent items		—			(15	)		(9	)		216
Changes in valuation allowance		7,166			(5,385	)		7,489			6,789
Other, net		27			24			95			882
Income tax benefit	$	—		$	—		$	—		$	(155	)

In addition to the $5.4 million change in valuation allowance in the above table, the Company recorded a deferred tax asset of $6.2 million and a valuation allowance of the same amount in connection with the Icon acquisition.

The significant components of deferred income taxes are as follows (in thousands):

	December 31,		June 30,
	2018		2018		2017
Deferred tax assets:
Net operating loss carryforwards	$	53,259	$	47,774	$	39,439
Deferred revenue		70		—		20
Stock-based compensation		4,788		4,241		5,107
Tax credits		3,696		3,463		1,727
Other		682		185		186
Total deferred tax assets		62,495		55,663		46,479
Deferred tax liabilities:
Intangible assets		8,207		8,542		123
Deferred tax assets, net		54,288		47,121		46,356
Valuation allowance		54,288		47,121		46,356
Total deferred tax liability	$	—	$	—	$	—

The valuation allowance generally reflects limitations on the Company’s ability to use the tax attributes and reduces the value of such attributes to the more-likely-than-not realizable amount. Management assessed the available positive and negative evidence to estimate if sufficient taxable income will be generated to use the existing net deferred tax assets. Based on a weighting of the objectively verifiable negative evidence in the form of cumulative operating losses over the three-year period ended June 30, 2018, management believes that it is not more likely than not that the deferred tax assets will be realized and, accordingly, a full valuation allowance has been established. The valuation allowance increased $7.1 million for the six months ended December 31, 2018 and $765,000, $7.5 million and $6.8 million during the fiscal years ended June 30, 2018, 2017 and 2016, respectively, with such increases attributed to the re-measurement of the net deferred tax assets at the year-end dates. The valuation allowance decreased by $5.4 million from fiscal year 2018 activity, including the impact of the 2017 Tax Act, offset by an increase of $6.2 million related to the Icon acquisition.

The Company has tax net operating loss and tax credit carry forwards in its individual tax jurisdictions. Including approximately $49.3 million related to the Icon acquisition, at December 31, 2018 the Company had U.S. federal net operating loss carry forwards of approximately $185.9 million, which expire at various dates between calendar years 2023 and 2038. The utilization of certain of these loss and tax credit carry forwards may be limited by Sections 382 and 383 of the Internal Revenue Code as a result of historical or future changes in the Company’s ownership. At December 31, 2018, the Company had state net operating loss carry forwards of approximately $144.3 million, which expire between 2033 and 2038, as well as U.S. federal and state research and development tax credit carry forwards of approximately $3.1 million, which expire at various dates between calendar years 2018 and 2038. In addition, at December 31, 2018 the Company had net operating loss carry forwards in the U.K. of £21.0 million (approximately $26.7 million), which are not subject to any expiration dates.

The Company’s U.S. federal income tax returns for calendar years 2003 through 2017 remain subject to examination by the Internal Revenue Service. The Company’s U.K. tax returns for fiscal years 2006 through 2017 remain subject to examination.

Through December 31, 2018, the Company had no unrecognized tax benefits in its consolidated statements of comprehensive loss and no unrecognized tax benefits in its consolidated balance sheets as of December 31, 2018, June 30, 2018 or 2017.

As of December 31, 2018, June 30, 2018 and 2017, the Company had no accrued penalties or interest related to uncertain tax positions.