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Income Taxes

12 Months Ended

Jun. 30, 2023

Income Taxes

Income Taxes

4. INCOME TAXES

Income (Loss) before income tax provision consisted of the following (in thousands):

​	​	​	​	​	​	​
​	​	Fiscal Year Ended June 30,
​		2023			2022
United States		$	(460)	​	$	(4,214)
Foreign		​	3,816	​		3,008
Income (Loss) before income tax provision	​	$	3,356	​	$	(1,206)

​

The reconciliation of income tax expense at the statutory federal income tax rate and the Company’s effective tax rate is as follows (in thousands):

​	​	​	​	​	​	​
​	​	​	Fiscal Year Ended June 30,
​		​	2023		​	2022
​	​	​	​	​	​	​
Federal statutory income tax rate		$	(705)	​	$	253
Current state taxes, net of federal benefit		​	1,152		​	134
Foreign rate differential		​	559		​	98
Research and development credits		​	747	​	​	433
Foreign withholding tax		​	(27)		​	(63)
Stock-based compensation	​	​	(136)	​	​	(102)
Deferred return to provision	​	​	(284)	​	​	(213)
Other items		​	(118)		​	(12)
Net change in valuation allowance	​	​	(1,726)	​	​	3,079
Foreign income	​	​	(709)	​	​	—
Expiration of tax attributes		​	—		​	(4,842)
Income tax provision		$	(1,247)	​	$	(1,235)

​

​

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

​

​	​	​	​	​	​	​
​	​	Fiscal Year Ended June 30,
​		2023			2022
Current provision:		​	​	​	​	​
Federal	​	$	—	​	$	—
State	​		(576)	​		(350)
Foreign	​	​	(1,221)	​	​	(586)
Total current:	​		(1,797)	​		(936)
Deferred:	​		​	​		​
Federal	​	​	—	​	​	—
State	​	​	—	​	​	—
Foreign	​		550	​		(299)
Total deferred:	​		550	​		(299)
Income tax provision	​	$	(1,247)	​	$	(1,235)

​

​

​

As of June 30, 2023, we had federal and state net operating loss carryforwards of approximately $38.9 million and $13.0 million, respectively. The net operating loss carryforwards will expire at various dates beginning in fiscal year ending June 30, 2027, if not utilized. We also had federal research and development credit carryforwards of approximately $4.3 million as of June 30, 2023, which will expire at various dates beginning in fiscal year ending June 30, 2025, if not utilized. The California research and development credit carryforwards are approximately $6.4 million as of June 30, 2023 and have an indefinite carryover period.

As of June 30, 2023, utilization of the NOL or tax credit carryforwards to offset future taxable income and taxes, respectively, are subject to an annual limitation under the Internal Revenue Code of 1986 and similar state provisions, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments such as built in gain or built in loss, as required. Any limitation may result in expiration of all or a portion of its NOL and or tax credit carryforwards before utilization. As of June 30, 2023, the Company did not identify any ownership change that would significantly limit the net operating loss carryovers.

​

Deferred tax assets and liabilities reflect the net tax effects of net operating loss and credit carryforwards and of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes.

Significant components of our deferred tax assets and liabilities for federal, state and foreign income taxes are as follows (in thousands):

​

​	​	​	​	​	​	​
​	​	As of June 30,
​		2023			2022
Deferred tax assets:	​	​	​	​	​	​
Net operating loss carryforwards	​	$	9,115	​	$	14,637
Research credits	​		9,404	​		8,321
Deferred revenue	​		898	​		1,036
Stock-based compensation	​		4,500	​		2,899
Accruals and reserves	​		1,126	​		6,057
Lease liability	​	​	563	​	​	664
Other	​		152	​		104
Capitalized research and development	​	​	10,088	​	​	—
Gross deferred tax assets	​		35,846	​		33,718
Less valuation allowance	​		(34,139)	​		(32,412)
Net deferred tax assets	​	$	1,707	​	$	1,306
Gross deferred tax liabilities	​	​	​	​	​	​
Right-of-use asset	​	$	(601)	​	$	(723)
Fixed assets	​	​	(42)	​	​	(69)
Gross deferred tax liabilities	​	​	(643)	​	​	(792)
Total deferred tax assets, net *	​	$	1,064	​	$	514
​	​	​	​	​	​	​
*included in other assets, net, on consolidated balance sheets	​	​	​	​	​	​

​

ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. For the legacy eGain business in the United States, based upon the weight of available evidence, which includes our historical operating performance and the reported cumulative net losses in prior years, we have provided a full valuation allowance against our U.S. net deferred tax assets. With respect to our foreign operations, we expect to utilize the deferred tax assets and have not placed a valuation allowance against them. Our tax provision primarily relates to foreign activities as well as state income taxes. Our income tax rate differs from the statutory tax rates primarily due to the change in valuation allowance, stock-based compensation, GILTI inclusion, research and development credits, and our foreign operations.

The net valuation allowance increased by $1.7 million and decreased by $3.1 million for the fiscal years ended June 30, 2023 and 2022, respectively.  

We have not provided for taxes on $24.6 million of undistributed earnings of our foreign subsidiaries as of June 30, 2023. It is our intention to reinvest such undistributed earnings indefinitely in our foreign subsidiaries. If we distribute these earnings, in the form of dividends or otherwise, we would be subject to withholding taxes payable to the foreign jurisdiction and potential state taxes.

For the fiscal years ended June 30, 2023 and 2022, we have $3.4 million and none of Global Intangible Low Tax Income (GILTI) inclusion and used our net operating losses to offset our taxable income, respectively.

​

Uncertain Tax Positions

​

The aggregate changes in the balance of our gross unrecognized tax benefits during fiscal years 2023 and 2022 were as follows (in thousands):

​	​	​	​	​	​	​
​	​	Fiscal Year Ended June 30,
​		2023			2022
Beginning balance	​	$	1,556	​	$	1,762
Increases in balances related to tax positions taken during current periods	​		130	​		89
Expired Attributes	​	​	(135)	​	​	(295)
Ending balance	​	$	1,551	​	$	1,556

​

​

There is no amount of unrecognized tax benefit, if recognized currently, that would impact the Company’s effective tax rate as of June 30, 2023 and 2022, respectively. No accrued interest and penalties have been recognized in the tax provision related to unrecognized tax benefits.

We do not anticipate the amount of existing unrecognized tax benefit to significantly increase or decrease during the next twelve months. Our policy is to record interest and penalties related to unrecognized tax benefits as income tax expense.

We file income tax returns in the United States as well as various state and foreign jurisdictions. In these jurisdictions, tax years between 2002 and 2016 remain subject to examination by the appropriate governmental agencies due to tax loss carryovers from those years. For U.S. tax purposes, tax years after 2016 are subject to a three year statute of limitations. The Company is not currently under audit with either the IRS, foreign, or any state or local jurisdictions, nor has it been notified of any other potential future income tax audit. The federal and California statute of limitations remains open for three and four years, respectively, from the date of utilization of any net operating loss or credits.

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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

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-Topic 946
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-Section 50
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Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 235
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-Topic 740
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