XML 59 R15.htm IDEA: XBRL DOCUMENT
v3.20.2

Income Taxes | 12 Months Ended
--- | ---
Jun. 30, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | For financial reporting purposes, income before income taxes includes the following components:
|  | Year Ended June 30, |
|  | 2020 |  |  | 2019 |
Pretax income (loss): |  |  |  |  |  |
United States |  | $ | (3,739,527 | ) |  | $ | (4,649,593 | )
Foreign |  |  | 5,370,454 |  |  |  | 2,424,476 |
Income (loss) before income taxes |  | $ | 1,630,927 |  |  | $ | (2,225,117 | )
The components of the provision for income taxes are as follows:
|  | Year Ended June 30, |
|  | 2020 |  |  | 2019 |
Current: |  |  |  |  |  |
Federal tax |  | $ | - |  |  | $ | (9,352 | )
State |  |  | 3,047 |  |  |  | 23,423 |
Foreign |  |  | 767,951 |  |  |  | 469,135 |
Total current |  |  | 770,998 |  |  |  | 483,206 |
Deferred: |  |  |  |  |  |  |  |
Federal tax |  |  | 4,931 |  |  |  | 21,803 |
State |  |  | (11,931 | ) |  |  | (49,803 | )
Foreign |  |  | - |  |  |  | - |
Total deferred |  |  | (7,000 | ) |  |  | (28,000 | )
Total income tax provision |  | $ | 763,998 |  |  | $ | 455,206 |
The reconciliation of income tax computed at the U.S. federal statutory rates to the total income tax provision is as follows:
|  | Year Ended June 30, |
|  | 2020 |  |  | 2019 |
U.S. federal statutory tax rate |  |  | 21.0 | % |  |  | 21.0 | %
Income tax provision reconciliation: |  |  |  |  |  |  |  |
Tax at statutory rate: |  | $ | 342,495 |  |  | $ | (467,275 | )
Net foreign income subject to lower tax rate |  |  | (497,959 | ) |  |  | (303,288 | )
State income taxes, net of federal benefit |  |  | (75,415 | ) |  |  | (26,380 | )
Valuation allowance |  |  | 344,793 |  |  |  | 652,262 |
IRC 965 repatriation |  |  | (206,807 | ) |  |  | 202,026 |
GILTI |  |  | 835,101 |  |  |  | 251,869 |
Federal research and development and other credits |  |  | (71,962 | ) |  |  | (84,440 | )
Stock-based compensation |  |  | - |  |  |  | 3,034 |
Other permanent differences |  |  | (183,367 | ) |  |  | 74,099 |
Other, net |  |  | 277,119 |  |  |  | 153,299 |
|  | $ | 763,998 |  |  | $ | 455,206 |
Tax Cuts and Jobs Act In December 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “TCJA”), which changes existing U.S. tax law and includes various provisions that are expected to affect companies. Among other things, the TCJA: (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. Implementation of the TCJA required the Company to calculate a one-time transition tax on certain foreign E&P that had not been previously repatriated. In accordance with SEC Staff Accounting Bulletin No.118, the Company recognized provisional amounts for income tax effects of the TCJA that it was able to reasonably estimate. During fiscal 2018, the Company provisionally determined its foreign E&P inclusion, and anticipated that it would not owe any one-time transition tax due to utilization of U.S. net operating loss (“NOL”) carryforward benefits against these earnings. During fiscal 2019, the Company completed its analysis of the TCJA, and although the Company did not owe any one-time transition tax, the deferred tax asset related to its NOL carryforwards was impacted by approximately $202,000. This amount is offset by a valuation allowance for a net impact of zero to its provision for income taxes for the year ended June 30, 2019. On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which, among other things, is intended to provide emergency assistance to qualifying businesses and individuals. The CARES Act also suspends the limitation on the deduction of NOLs arising in taxable years beginning before January 1, 2021, permits a five-year carryback of NOLs arising in taxable years beginning after December 31, 2017 and before January 1, 2021, and generally modifies the limitation on the deduction for net interest expense to 50% of adjusted taxable income for taxable years beginning in 2019 and 2020. During fiscal 2020, as a result of the CARES act, the Company was able to accelerate the recovery of an income tax receivable related to previously paid alternative minimum tax. The receivable amount of approximately $107,000 as of June 30, 2020 was collected in July 2020. In addition, the Company elected to utilize the payroll tax deferral under the CARES act, resulting in cash savings of approximately $100,000, accrued as of June 30, 2020 and deferred until at least December 31, 2020. Income Tax Law of the People’s Republic of China 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. For both the years ended June 30, 2020 and 2019, the tax rate for LPOIZ was 15%, in accordance with an incentive program for technology companies. No deferred tax provision has been recorded for China, as the effect is deemed de minimis. In December 2019, we declared an intercompany dividend of $2 million from LPOIZ, payable to us as its parent company. Accordingly, we accrued and paid Chinese withholding taxes of $200,000 associated with the dividend. During fiscal 2020, LPOIZ paid to us $1.8 million, after the withholding taxes. Other than these withholding taxes, this intercompany dividend has no impact on our Consolidated Financial Statements. Subsequent to fiscal 2020, in July 2020 we declared an intercompany dividend of $3 million from LPOIZ, payable to us as its parent company. This dividend will be paid in installments during fiscal 2021, and we will incur Chinese withholding taxes totaling $300,000 on this dividend. Historically, the Company considered unremitted earnings held by its foreign subsidiaries to be permanently reinvested. However, during fiscal 2020, the Company began declaring intercompany dividends to remit a portion of the historical earnings of its foreign subsidiaries to the U.S. parent company. It is still the Company’s intent to reinvest a significant portion of the more recent earnings generated by its foreign subsidiaries, however the Company also plans to repatriate a portion of the historical earnings of its subsidiaries. Based on its previous intent, the Company had not historically provided for future Chinese withholding taxes on the related earnings. However, during fiscal 2020 the Company began to accrue for these taxes on the portion of historical earnings that it intends to repatriate. Law of Corporate Income Tax of Latvia The Company’s Latvian subsidiary, ISP Latvia, is governed by the Law of Corporate Income Tax of Latvia. Until December 31, 2017, ISP Latvia was subject to a statutory income tax rate of 15%. 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 tax rate was changed to 20%; however, distribution amounts are first divided by 0.8 to arrive at the taxable amount of profit, resulting in an effective tax rate of 25%. As a transitional measure, distributions made from earnings prior to January 1, 2018, distributed prior to December 31, 2019, are not subject to tax if declared prior to December 31, 2019. ISP Latvia has declared an intercompany dividend to be paid to ISP, its U.S. parent company, for the full amount of earnings accumulated prior to January 1, 2018. Distributions of this dividend will be from earnings prior to January 1, 2018 and, therefore, will not be subject to tax. The Company currently does not intend to distribute any current earnings generated after January 1, 2018. If, in the future, the Company changes such intention, distribution taxes, if any, will be accrued as profits are generated. 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:
|  | 2020 |  |  | 2019 |
Deferred tax assets: |  |  |  |  |  |
Net operating loss and credit carryforwards |  | $ | 16,039,000 |  |  | $ | 16,044,000 |
Stock-based compensation |  |  | 868,000 |  |  |  | 822,000 |
R&D and other credits |  |  | 2,108,000 |  |  |  | 2,014,000 |
Capitalized R&D expenses |  |  | 487,000 |  |  |  | 476,000 |
Inventories |  |  | 218,000 |  |  |  | 156,000 |
Accrued expenses and other |  |  | 99,000 |  |  |  | 111,000 |
Gross deferred tax assets |  |  | 19,819,000 |  |  |  | 19,623,000 |
Valuation allowance for deferred tax assets |  |  | (17,044,000 | ) |  |  | (16,725,000 | )
Total deferred tax assets |  |  | 2,775,000 |  |  |  | 2,898,000 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation and other |  |  | (390,000 | ) |  |  | (277,000 | )
Intangible assets |  |  | (1,726,000 | ) |  |  | (1,969,000 | )
Total deferred tax liabilities |  |  | (2,116,000 | ) |  |  | (2,246,000 | )
Net deferred tax asset |  | $ | 659,000 |  |  | $ | 652,000 |
As of June 30, 2019, the Company has also recorded a non-current income tax receivable of $214,000 related to previously paid alternative minimum tax that is expected to be recovered within the next five years pursuant to certain provisions of the TCJA. During fiscal 2020, approximately $107,000 of this receivable was collected, and the balance was reclassified to other receivables, current, and subsequently collected in July 2020. 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 $74 million prior to the expiration of NOL carry-forwards from 2021 through 2034. Based on the level of historical taxable income, management has provided for a valuation adjustment against the deferred tax assets of $17,044,000 at June 30, 2020, an increase of approximately $319,000 as compared to June 30, 2019. The increase in the valuation allowance for deferred tax assets as compared to the prior year is primarily the result of the various movements in the current year deferred items. The net deferred tax asset of $659,000 results from federal and state tax credits with indefinite carryover periods, and approximately $510,000 in federal NOL carryforwards 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, 2020, in addition to net operating loss carry forwards, the Company also has research and development credit carry forwards of approximately $2,108,000, which will expire from 2022 through 2039. 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.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration