Note 11 - Income Taxes

12 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Text Block]

NOTE 11 — INCOME TAXES

The following information is provided for the years ended June 30:

(In thousands)	2012			2011			2010
Components of income before income taxes
United States	$	8,131		$	17,430		$	2,323
Foreign		(1,940	)		(1,263	)		(539	)
Income before income taxes	$	6,191		$	16,167		$	1,784
Provision (benefit) for income taxes:
Current
U.S. federal	$	2,543		$	4,047		$	2,015
State and local		313			393			(12	)
Foreign		(198	)		(104	)		(79	)
Total current		2,658			4,336			1,924
Deferred		309			1,003			(1,564	)
Total provision for income taxes	$	2,967			5,339		$	360

(In thousands)	2012			2011			2010
Reconciliation to federal statutory rate:
Federal statutory tax rate		34.0	%		34.3	%		34.0	%
State and local taxes, net of federal benefit		4.5			1.4			(11.5	)
Impact of foreign operations		(4.1	)		(1.5	)		(9.3	)
Federal and state tax credits		(1.3	)		(0.9	)		(5.8	)
Goodwill		1.3			(0.1	)		(0.5	)
Valuation allowance		13.1			3.5			19.8
Domestic Production Activities Deduction		(4.0	)		(2.7	)		(4.6	)
Other		4.4			(1.0	)		(1.9	)
Effective tax rate		47.9	%		33.0	%		20.2	%

The components of deferred income tax assets and (liabilities) at June 30, 2012 and 2011 are as follows:

(In thousands)	2012			2011
Reserves against current assets	$	358		$	233
Accrued expenses		1,510			1,276
Depreciation		(3,719	)		(3,534	)
Goodwill, acquisition costs and intangible assets		1,838			2,597
Deferred compensation		955			893
State net operating loss carryover and credits		1,978			1,858
Foreign net operating loss carryover and credits		3,827			3,286
Valuation reserve		(5,009	)		(4,200	)
U.S. Federal net operating loss carryover and credits		620			—
Net deferred income tax asset	$	2,358		$	2,409

Reconciliation to the balance sheets as of June 30, 2012 and 2011:

(In thousands)	2012		2011
Deferred income tax asset included in:
Other current assets	$	1,868	$	1,509
Other long-term assets		490		900
Net deferred income tax asset	$	2,358	$	2,409

As of June 30, 2012 and 2011, the Company has recorded a deferred state income tax asset in the amount of $1,715,000 and $1,768,000, respectively, net of federal tax benefits, related to non-refundable New York state tax credits. The Company has determined that this deferred state income tax asset requires a partial valuation reserve.  These credits do not expire, but the Company has determined that this asset more likely than not, will not be realized within the next twenty years.  As of June 30, 2012 and 2011, the Company has recorded a valuation reserve in the amount of $919,000 and $824,000, respectively.  This activity netted to an additional state income tax expense of $95,000 in fiscal year 2012, and zero in fiscal years 2011 and 2010.

As of June 30, 2012 and 2011, the Company has recorded a deferred state income tax asset in the amount of $90,000 related to a state net operating loss carryover in Tennessee, and has determined that a full valuation reserve is required. Since this business was sold, the Company has determined this asset more likely than not, will not be realized. This activity netted to an additional state income tax expense (benefit) of $0, $11,000, and $(59,000) in fiscal years 2012, 2011 and 2010, respectively.

As of June 30, 2012, the Company has recorded a deferred state income tax asset in the amount of $173,000 related to a state net operating loss carryover and a state R & D Credit in Oregon acquired during the acquisition of Virticus Corporation.  The Company has determined this asset more likely than not, will not be realized and that a full valuation reserve is required.

As of June 30, 2012 and 2011, the Company has recorded deferred tax assets for its Canadian subsidiary related to net operating loss carryover and to research and development tax credits totaling $3,827,000 and $3,286,000, respectively.  In view of the impairment of the goodwill and certain intangible assets on the financial statements of this subsidiary and a current series of loss years, the Company has determined these assets, more likely than not, will not be realized.

Considering all issues discussed above, the Company has recorded valuation reserves of $5,009,000 and $4,200,000 as of June 30, 2012 and 2011, respectively.

The Company accounts for uncertain tax positions in accordance with Accounting Standards Codification 740-10.  At June 30, 2012, tax and interest, net of potential federal tax benefits, were $1,234,000 and $429,000, respectively, of the total reserve for uncertain tax positions of $1,941,000. Additionally, penalties were $278,000 of the reserve at June 30, 2012. Of the $1,941,000 reserve for uncertain tax positions, $1,663,000 would have an unfavorable impact on the effective tax rate if recognized. At June 30, 2011, tax and interest, net of potential federal tax benefits, were $1,241,000 and $452,000, respectively, of the total reserve for uncertain tax positions of $1,999,000. Additionally, penalties were $305,000 of the reserve at June 30, 2011. Of the $1,999,000 reserve for uncertain tax positions, $1,694,000 would have an unfavorable impact on the effective tax rate if recognized.

The Company recognized a $9,000 tax benefit in fiscal 2012, a $421,000 tax benefit in fiscal 2011, and a $216,000 tax benefit in fiscal 2010 related to the change in reserves for uncertain tax positions. The Company is recording estimated interest and penalties related to potential underpayment of income taxes as a component of tax expense in the Consolidated Statements of Operations. The reserve for uncertain tax positions is not expected to change significantly in the next twelve months.

The fiscal 2012, 2011 and 2010 activity in the Liability for Uncertain Tax Positions, which is included in Other Long-Term Liabilities, was as follows:

(in thousands)	2012			2011			2010
Balance at beginning of the fiscal year	$	1,910		$	2,366		$	2,693
Increases — tax positions in prior period		—			—			—
Decreases — tax positions in prior period		(284	)		(172	)		(255	)
Increases — tax positions in current period		234			74			37
Decreases — tax positions in current period		—			—			—
Settlements and payments		—			—			(85	)
Lapse of statute of limitations		—			(358	)		(24	)
Balance at end of the fiscal year	$	1,860		$	1,910		$	2,366

The Company files a consolidated federal income tax return in the United States, and files various combined and separate tax returns in several foreign, state, and local jurisdictions. With limited exceptions, the Company is no longer subject to U.S. Federal, state and local tax examinations by tax authorities for fiscal years ending prior to June 30, 2008.