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Income Taxes | 12 Months Ended
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Jun. 30, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | For financial reporting purposes, income before income taxes includes the following components:
|  | Year Ended June 30, |
|  | 2018 |  |  | 2017 |
Pretax income: |  |  |  |  |  |
United States |  | $ | 359,027 |  |  | $ | (485,966 | )
Foreign |  |  | (126,000 | ) |  |  | 3,847,752 |
Income before income taxes |  | $ | 233,027 |  |  | $ | 3,361,786 |
The components of the provision for income taxes are as follows:
|  | Year Ended June 30, |
|  | 2018 |  |  | 2017 |
Current: |  |  |  |  |  |
Federal tax |  | $ | 57,315 |  |  | $ | 98,787 |
State |  |  | - |  |  |  | - |
Foreign |  |  | (117,852 | ) |  |  | 1,053,617 |
Total current |  |  | (60,537 | ) |  |  | 1,152,404 |
Deferred: |  |  |  |  |  |  |  |
Federal tax |  |  | (510,125 | ) |  |  | (5,384,171 | )
State |  |  | (72,875 | ) |  |  | (121,000 | )
Foreign |  |  | (183,540 | ) |  |  | 11,467 |
Total deferred |  |  | (766,540 | ) |  |  | (5,493,704 | )
Total income tax (benefit) |  | $ | (827,077 | ) |  | $ | (4,341,300 | )
The reconciliation of income tax computed at the U.S federal statutory rates to income tax expense is as follows:
|  | Year Ended June 30, |
|  | 2018 |  |  | 2017 |
U.S. federal statutory tax rate |  |  | 27.5 | % |  |  | 34.0 | %
Income tax provision reconciliation: |  |  |  |  |  |  |  |
Tax at statutory rate: |  | $ | 64,082 |  |  | $ | 1,143,010 |
Net foreign income subject to lower tax rate |  |  | 25,927 |  |  |  | (464,335 | )
State income taxes, net of federal benefit |  |  | (107,997 | ) |  |  | 2,418,932 |
Valuation allowance |  |  | (11,763,000 | ) |  |  | (8,085,000 | )
Changes in statutory income tax rates |  |  | 9,114,886 |  |  |  | - |
IRC 965 repatriation |  |  | 1,809,603 |  |  |  | - |
Federal research and development and other credits |  |  | (163,165 | ) |  |  | (118,128 | )
Stock-based compensation |  |  | 43,818 |  |  |  | 100,469 |
Change in fair value of derivative warrants |  |  | 53,524 |  |  |  | 158,965 |
Acquisiton costs |  |  | - |  |  |  | 75,332 |
Other permanent differences |  |  | 30,758 |  |  |  | (43,295 | )
Other, net |  |  | 64,487 |  |  |  | 472,750 |
|  | $ | (827,077 | ) |  | $ | (4,341,300 | )
Tax Cuts and Jobs Act In December 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “2017 Act”), which changes existing U.S. tax law and includes various provisions that are expected to affect companies. Among other things, the 2017 Act: (i) changes U.S. corporate tax rates, (ii) generally reduces a company’s ability to utilize accumulated net operating losses, and (iii) requires the calculation of a one-time transition tax on certain foreign earnings and profits (“foreign E&P”) that had not been previously repatriated. As of June 30, 2018, we have not fully completed our accounting for the income tax impact of enactment of the 2017 Act. In accordance with SEC Staff Accounting Bulletin No.118, we have recognized provisional amounts for income tax effects of the 2017 Act that we were able to reasonably estimate. We intend to adjust the tax effects for the relevant items during the allowed measurement period. We are still evaluating certain aspects of the Tax Act and refining our calculations, which could potentially affect our tax balances. We were also able to reasonably estimate the tax treatment of our foreign E&P as per the 2017 Act. The 2017 Act provides for a one-time transition tax on our post-1986 foreign E&P that have not been previously repatriated. We have provisionally determined our foreign E&P inclusion is $6.9 million and anticipate that we will not owe any one-time transition tax due to utilization of U.S. net operating loss (“NOL”) carry-forward benefits against these earnings. However, we are still refining our calculations, including estimated foreign E&P layers for fiscal 2018, which could impact these amounts. Additionally, U.S. gross deferred tax assets and liabilities have been reduced by an estimated $9.5 million based on the U.S. income tax rate change; however, this reduction was primarily offset by a corresponding reduction to the valuation allowance against the net deferred tax assets, which resulted in minimal net effect to the provision for income taxes as a result of the U.S. income tax rate change. The Company currently intends to permanently invest earnings generated from its foreign Chinese operations, and, therefore, has not previously provided for future Chinese withholding taxes on such related earnings. However, if in the future the Company changes such intention, the Company would provide for and pay additional foreign taxes, if any, at that time. The Company’s Chinese subsidiaries, LPOI and LPOIZ, are governed by the Income Tax Law of the People’s Republic of China concerning the privately run and foreign invested enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. During the three months ended December 31, 2017, the statutory tax rate applicable to LPOIZ was lowered from 25% to 15% in accordance with an incentive program for technology companies. The lower rate applies to LPOIZ’s 2017 tax year, beginning January 1, 2017. Accordingly, we recorded a tax benefit of approximately $100,000 during the year ended June 30, 2018 related to this retroactive rate change. For the fiscal year ended June 30, 2018, income taxes were accrued at the applicable rates. No deferred tax provision has been recorded for China, as the effect is deemed de minimis. The Company’s Latvian subsidiary is governed by the Law of Corporate Income Tax of Latvia, which is applicable to privately run and foreign invested enterprises, and which generally subjects such enterprises to a statutory rate of 15% on income reported in the statutory financial statements after appropriate tax adjustments. Effective January 1, 2018, the Republic of Latvia enacted tax reform with the following key provisions: (i) corporations are no longer subject to income tax, but are instead subject to a distribution tax on distributed profits (or deemed distributions, as defined) and (ii) the rate of tax was changed to 20%; however, distribution amounts are first divided by 0.8 to arrive at the profit before tax amount, resulting in an effective tax rate of 25%. Our intent is to distribute profits from ISP Latvia to ISP, its parent company in the U.S.; therefore, we will accrue distribution taxes, if any, as profits are generated. With this change, the concept of taxable income and tax basis in assets and liabilities has been eliminated and is no longer relevant for determining income taxes; therefore, the previously recorded net deferred tax liability related to ISP Latvia was adjusted to zero during the fiscal year ended June 30, 2018, resulting in a tax benefit of approximately $184,000. The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows at June 30:
|  | 2018 |  |  | 2017 |
Deferred tax assets: |  |  |  |  |  |
Net operating loss and credit carryforwards |  | $ | 16,282,000 |  |  | $ | 29,014,000 |
Stock-based compensation |  |  | 710,000 |  |  |  | 943,000 |
R&D and other credits |  |  | 1,899,000 |  |  |  | 1,983,000 |
Capitalized R&D expenses |  |  | 373,000 |  |  |  | 562,000 |
Inventory |  |  | 143,000 |  |  |  | 243,000 |
Accrued expenses and other |  |  | 83,000 |  |  |  | 407,091 |
Gross deferred tax assets |  |  | 19,490,000 |  |  |  | 33,152,091 |
Valuation allowance for deferred tax assets |  |  | (16,123,000 | ) |  |  | (27,886,000 | )
Total deferred tax assets |  |  | 3,367,000 |  |  |  | 5,266,091 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation and other |  |  | (563,000 | ) |  |  | (1,187,440 | )
Intangible assets |  |  | (2,180,000 | ) |  |  | (3,976,000 | )
Total deferred tax liabilities |  |  | (2,743,000 | ) |  |  | (5,163,440 | )
Net deferred tax asset |  | $ | 624,000 |  |  | $ | 102,651 |
The above deferred balances include a reduction of approximately $244,000 in federal credits related to alternative minimum tax (“AMT”) that have been reclassified to income taxes receivable, as the Company expects to recover these amounts within the next five years due to changes made by the 2017 Act. In assessing the potential future recognition of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income of approximately $75 million prior to the expiration of NOL carry-forwards from 2019 through 2035. Based on the level of historical taxable income, management has provided for a valuation adjustment against the deferred tax assets of $16,123,000 at June 30, 2018, a decrease of approximately $11,763,000 as compared to June 30, 2017. The reduction in the valuation allowance for deferred tax assets as compared to the prior year is primarily the result of a $9.5 million decrease resulting from the reduction of the U.S. statutory corporate income tax rate from a maximum of 35% to a flat 21%, effective January 1, 2018. The net deferred tax asset results from federal and state tax credits with indefinite carryover periods and approximately $500,000 in federal NOL carry-forwards that management expects to utilize in a future period. State income tax expense disclosed on the effective tax rate reconciliation above includes state deferred taxes that are offset by a full valuation allowance. At June 30, 2018, in addition to net operating loss carry forwards, the Company also has research and development credit carry forwards of approximately $1,630,000, of which $38,505 will expire in fiscal 2019 and the remainder will expire from 2020 through 2036. A portion of the NOL carry forwards may be subject to certain limitations of the Internal Revenue Code Sections 382 and 383, which would restrict the annual utilization in future periods due principally to changes in ownership in prior periods. The Company has not recognized a liability for uncertain tax positions. A reconciliation of the beginning and ending amount of unrecognized tax benefits or penalties has not been provided since there has been no unrecognized tax benefit or penalty. If there were an unrecognized tax benefit or penalty, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company files U.S. Federal income tax returns, and returns in various states and foreign jurisdictions. The Company's open tax years subject to examination by the Internal Revenue Service and the Florida Department of Revenue generally remain open for three years from the date of filing.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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