Note 8 — Income Taxes

Income tax expense consists of the following for the three years ended June 30:

	2013		2012		2011
Current:
Federal	$	3,623,000	$	2,733,000	$	2,582,000
State		138,000		147,000		14,000
Deferred:
Federal		(358,000)		(13,000)		(141,000)
State		88,000		28,000		(7,000)
Income tax expense	$	3,491,000	$	2,895,000	$	2,448,000

A reconciliation of the federal statutory rate to the effective tax rate reflected in the total provision for income taxes is as follows:

	Years Ended June 30,
	2013			2012			2011
Statutory rate		34	%		34	%		34	%
Exempt income from domestic manufacturer’s deduction		(4)			(6)			(3)
Research and development tax credit		—			(4)			(1)
Non deductible expenses:
Adjustment to fair value of contingent earnout liability		3			31			—
Other		—			2			1
State taxes		1			2			—
Effective rate		34	%		59	%		31	%

Deferred income taxes under the liability method reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the Company’s net deferred income tax asset and liability accounts were as follows at June 30:

	2013		2012
Net deferred tax asset – current:
Inventory valuation reserve	$	221,000	$	184,000
Allowance for uncollectible accounts		88,000		140,000
Unicap		128,000		16,000
Other, net		41,000		51,000
Total	$	478,000	$	391,000
Net deferred tax liability – non-current:
Stock options and restricted stock	$	163,000	$	275,000
Amortization of intangible assets		326,000		305,000
Intangible assets acquired, net		(2,145,000)		(2,459,000)
Property, plant and equipment depreciation		(304,000)		(268,000)
Amortization of goodwill		(433,000)		(358,000)
Other, net		14,000		76,000
Total	$	(2,379,000)	$	(2,429,000)

ASC 740, “Income Taxes,” requires the Company to review all open tax years in all tax jurisdictions to determine if there are any uncertain income tax positions that require recognition in the Company’s financial statements, including any penalties and interest, based on the “more-likely-than-not” criterion. Based on its review, the Company has concluded that there were no significant income tax positions that would require the recording of additional income taxes in the Company’s financial statements at June 30, 2013 and 2012. There were no unallocated tax reserves at June 30, 2013 and 2012. The Company’s federal income tax returns for fiscal years prior to 2010 are no longer subject to examination by the Internal Revenue Service.