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Income Taxes
 12 Months Ended
Jun. 30, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

   

8.Income Taxes

 

The provision (benefit) for income taxes consists of the following components:

          
   Years Ended June 30, 
   2022   2021 
   (In thousands) 
Current:        
Federal  $–   $8 
State   11    5 
Foreign   254    182 
Total Current taxes  $265   $195 
Deferred:          
Federal   (1,805)   – 
State   (292)   – 
Foreign   –    – 
Provision (benefit) for income taxes  $(1,832)  $195 

   

The following table presents U.S. and foreign income (loss) before income taxes:  

          
   Years Ended June 30, 
   2022   2021 
   (In thousands) 
United States  $(7,829)  $(3,294)
Foreign   635    (555)
Loss before income taxes  $(7,194)  $(3,849)

 

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:  

          
   Years Ended June 30, 
   2022   2021 
   (In thousands) 
Deferred tax assets:          
Tax losses and credits  $15,310   $20,281 
Reserves not currently deductible   1,881    1,537 
Deferred compensation   1,858    1,579 
Inventory capitalization   1,508    748 
Lease liabilities   2,260    459 
Depreciation and amortization   130    1,572 
Other   333    285 
Gross deferred tax assets   23,280    26,461 
Valuation allowance   (20,173)   (25,588)
Deferred tax assets, net   3,107    873 
Deferred tax liabilities:          
State taxes   (404)   (388)
Right-of-use assets   (2,240)   (485)
Identified intangibles   (463)   – 
Deferred tax liabilities   (3,107)   (873)
Net deferred tax assets (liabilities)  $–   $– 

  

Realization of deferred tax assets is dependent upon the generation of future taxable income. As required by ASC 740, we have evaluated the positive and negative evidence bearing upon our ability to realize the deferred tax assets as of June 30, 2022. We have determined that it was more likely than not that Lantronix would not realize the deferred tax assets due to our cumulative losses and uncertainty of generating future taxable income.

 

As a result of the acquisition of the TN Companies (refer to Note 3), we recorded U.S. deferred tax liabilities in the purchase accounting related to non-tax-deductible intangible assets recognized in our consolidated financial statements. The acquired deferred tax liabilities are a source of income to support recognition of our existing deferred tax assets. Pursuant to ASC 805, the impact on our existing deferred tax assets and liabilities caused by an acquisition should be recorded in the consolidated financial statements outside of acquisition accounting. Accordingly, we recorded an income tax benefit during the year ended June 30, 2022 of $2,036,000 for the partial release of the valuation allowance as a result of such purchase accounting considerations.

 

The following table presents a reconciliation of the provision (benefit) for income taxes to taxes computed at the U.S. federal statutory rate:  

          
   Years Ended June 30, 
   2022   2021 
   (In thousands) 
Statutory federal provision (benefit) for income taxes  $(1,510)  $(809)
Increase (decrease) resulting from:          
Stock options   (588)   (320)
Other permanent differences   (54)   (9)
Change in valuation allowance   (1,829)   1,285 
Foreign tax credit   –    (84)
Global intangible low-tax income inclusion   4    82 
Foreign tax rate variances   120    299 
Acquisition costs   395    53 
Other   1,630    (302)
Provision (benefit) for income taxes  $(1,832)  $195 

 

  

Due to the “change of ownership” provision of the Tax Reform Act of 1986, utilization of our net operating loss (“NOL”) carryforwards and tax credit carryforwards may be subject to an annual limitation against taxable income in future periods. Due to the annual limitation, a portion of these carryforwards may expire before ultimately becoming available to reduce future income tax liabilities.

 

The following table presents our NOLs:  

     
   June 30, 
   2022 
   (In thousands) 
Federal  $70,456 
State  $14,861 

 

For federal income tax purposes, our NOL carryovers generated for tax years beginning before July 1, 2018 began to expire in the fiscal year ended June 30, 2021. Of our federal NOLs as of June 30, 2022 in the table above, approximately $26,500,000 will expire by June 30, 2023. Pursuant to the Tax Cuts and Jobs Act (the “2017 Act”) enacted by the U.S. federal government in December 2017, for federal income tax purposes, NOL carryovers generated for our tax years beginning after June 30, 2018 can be carried forward indefinitely but will be subject to a taxable income limitation. For state income tax purposes, our NOLs began to expire in the fiscal year ended June 30, 2013.

 

We continue to assert that our foreign earnings are indefinitely reinvested in our overseas operations and as such, deferred income taxes were not provided on undistributed earnings of certain foreign subsidiaries. The 2017 Act created a requirement that certain income earned by foreign subsidiaries, known as global intangible low-tax income (“GILTI”), must be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when incurred. During the fiscal years ended June 30, 2022 and 2021, we elected to treat the tax effect of GILTI as a current-period expense when incurred.

  

Unrecognized Tax Benefits

 

The following table summarizes our liability for uncertain tax positions for the fiscal year ended June 30, 2022:  

     
   Year Ended 
   June 30, 2022 
   (In thousands) 
Balance as of June 30, 2021  $6,639 
Change in balances related to uncertain tax positions   (987)
Balance as of June 30, 2022  $5,652 

 

At June 30, 2022, we had $5,652,000 of gross unrecognized tax benefits which was recorded as a reduction to deferred tax assets, and a corresponding reduction in our valuation allowance of $5,652,000. The balance decreased from the prior year due to the expiration of certain federal research and development tax credit carryforwards. To the extent such portion of unrecognized tax benefits is recognized at a time such valuation allowance no longer exists, the recognition would reduce the effective tax rate. Our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. During the fiscal years ended June 30, 2022 and 2021, we recorded an immaterial expense for interest and penalties related to income tax matters in the provision for income taxes. At June 30, 2022, we had approximately $288,000 of accrued interest and penalties related to uncertain tax positions.

  

At June 30, 2022, our fiscal years ended June 30, 2019 through 2022 remain open to examination by the federal taxing jurisdiction and our fiscal years ended June 30, 2017 through 2021 remain open to examination by the state taxing jurisdictions. However, we have NOLs beginning in the fiscal year ended June 30, 2001 which would cause the statute of limitations to remain open for the year in which the NOL was incurred. Our fiscal years ended June 30, 2014 through 2021 remain open to examination by foreign taxing authorities. We currently do not anticipate that the amount of unrecognized tax benefits as of June 30, 2022 will significantly increase or decrease within the next 12 months.