NOTE 5 - Income Taxes

The provision for income taxes is comprised of the following (in thousands):

	For the Years Ended June 30,
	2015		2014
Current income taxes:
Federal	$	(49)	$	76
State		35		31
		(14)		107
Deferred income tax provision		230		424
Provision for income taxes	$	216	$	531

A reconciliation of the U.S. Federal statutory income tax rate to our actual effective tax rate on earnings before income taxes is as follows for the years ended June 30, (dollars in thousands):

	2015					2014
			% of					% of
			Pre-tax					Pre-tax
	Amount		Income			Amount		Income
Tax at Federal statutory rate	$	1,721		34.0	%	$	1,362		34.0	%
Increases (decreases) in taxes resulting from:
Meals and entertainment		66		1.3	%		63		1.6	%
State income taxes, net of Federal income tax benefit		21		0.4	%		20		0.5	%

Foreign source income not subject to tax		(1,069)		(21.1)	%		(837)		(20.9)	%
R&D Credit refund		(328)		(6.5)	%		(144)		(3.6)	%
Income tax reserve adjustments		(93)		(1.8)	%		—		—
Other, net		(102)		(2.0)	%		67		1.7	%
Effective tax rate	$	216		4.3	%	$	531		13.3	%

Deferred tax assets and deferred tax liabilities at June 30, 2015 and 2014 are as follows (in thousands):

	Current Deferred Tax Assets				Long-term Deferred Tax
	(Liabilities)				Assets (Liabilities)
	2015		2014		2015		2014
Accounts receivable	$	36	$	25	$	—	$	—
Inventories		533		406		261		336
Accrued Liabilities		311		308		86		64
Stock based compensation expense		—		—		147		139
Goodwill		—		—		214		1,324
R&D credit		—		—		804		451
Property, plant and equipment		—		—		(512)		(527)
Other deferred tax liabilities		—		—		(366)		(782)
		880		739		634		1,005
Valuation allowance		—		—		—		—
Net deferred tax assets	$	880	$	739	$	634	$	1,005

The Company has identified the United States and New York State as its major tax jurisdictions. The fiscal 2012 and forward years are still open for examination.

During the year ending June 30, 2015 the Company decreased its reserve for uncertain income tax positions by $67,000. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense and accrued income taxes. As of June 30, 2015, the Company had accrued interest totaling $0 and $102,000 of unrecognized net tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future period. The Company uses the flow through method to account for investment tax credits earned on eligible research and development expenditures. Under this method, the investment tax credits are recognized as a reduction to income tax expense.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Tax		Interest		Total
Balance of gross unrecognized tax benefits as of July 1, 2014	$	169	$	—	$	169
Decreases to unrecognized tax benefits resulting from expiring statutes		(67)		—		(67)
Balance of gross unrecognized tax benefits as of June 30, 2015	$	102	$	—	$	102

The Company plans to permanently reinvest a substantial portion of its foreign earnings and as such has not provided US corporate taxes on the permanently reinvested earnings. As of June 30, 2015, the Company had approximately $2.6 million of undistributed earnings of foreign subsidiaries.