Note 11 - Income Taxes

12 Months Ended

Jun. 30, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 11 — INCOME TAXES

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

(In thousands)	2013			2012			2011
Components of income before income taxes:
United States	$	2,369		$	8,131		$	17,430
Foreign		(1,754	)		(1,940	)		(1,263	)
Income before income taxes	$	615		$	6,191		$	16,167
Provision (benefit) for income taxes:
Current
U.S. federal	$	972		$	2,543		$	4,047
State and local		(440	)		313			393
Foreign		(57	)		(198	)		(104	)
Total current		475			2,658			4,336
Deferred		263			309			1,003
Total provision for income taxes	$	738		$	2,967		$	5,339

(In thousands)	2013			2012			2011
Reconciliation to federal statutory rate:
Federal statutory tax rate		34.0	%		34.0	%		34.3	%
State and local taxes, net of federal benefit		17.0			6.6			2.0
Impact of foreign operations		(7.1	)		(4.1	)		(1.5	)
Federal and state tax credits		(34.1	)		(1.3	)		(0.9	)
Goodwill		133.6			1.3			(0.1	)
Valuation allowance		145.6			13.1			3.5
Domestic Production Activities Deduction		(22.2	)		(4.0	)		(2.7	)
Uncertain Tax Position Activity		(101.6	)		(0.9	)		(2.8	)
Contingent Liability		(49.6	)		--			--
Other		4.5			3.2			1.2
Effective tax rate		120.1	%		47.9	%		33.0	%

The components of deferred income tax assets and (liabilities) at June 30, 2013 and 2012 are as follows:

(In thousands)	2013			2012
Reserves against current assets	$	370		$	358
Accrued expenses		1,686			1,510
Depreciation		(3,709	)		(3,719	)
Goodwill, acquisition costs and intangible assets		1,646			1,838
Deferred compensation		999			955
State net operating loss carryover and credits		1,991			1,978
Foreign net operating loss carryover and credits		4,256			3,827
Valuation reserve		(5,750	)		(5,009	)
U.S. Federal net operating loss carryover and credits		606			620
Net deferred income tax asset	$	2,095		$	2,358

Reconciliation to the balance sheets as of June 30, 2013 and 2012:

(In thousands)	2013		2012
Deferred income tax asset included in:
Other current assets	$	2,056	$	1,868
Other long-term assets		39		490
Net deferred income tax asset	$	2,095	$	2,358

As of June 30, 2013 and 2012, the Company has recorded a deferred state income tax asset in the amount of $1,727,000 and $1,715,000, 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, 2013 and 2012, the Company has recorded a valuation reserve in the amount of $1,231,000 and $919,000, respectively. This activity netted to an additional state income tax expense of $312,000 and $95,000 in fiscal years 2013 and 2012, respectively, and zero in fiscal year 2011.

As of June 30, 2013 and 2012, 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 Tennessee-based company 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 of $0 in fiscal years 2013 and 2012 and $11,000 in fiscal year 2011.

As of June 30, 2013 and 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 research and development 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, 2013 and 2012, 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 $4,256,000 and $3,827,000, respectively. In view of 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 $5,750,000 and $5,009,000 as of June 30, 2013 and 2012, respectively.

The Company accounts for uncertain tax positions in accordance with Accounting Standards Codification 740-10. At June 30, 2013, tax and interest, net of potential federal tax benefits, were $630,000 and $395,000 respectively, of the total reserve for uncertain tax positions of $1,244,000. Additionally, penalties were $219,000 of the reserve at June 30, 2013. Of the $1,244,000 reserve for uncertain tax positions, $1,025,000 would have an unfavorable impact on the effective tax rate if recognized. 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. The liability for uncertain tax positions is included in Other Long-Term Liabilities.

The Company recognized a $540,000 tax benefit in fiscal 2013, a $9,000 tax benefit in fiscal 2012, and a $421,000 tax benefit in fiscal 2011 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 2013, 2012 and 2011 gross tax activity in the liability for uncertain tax positions was as follows:

(in thousands)	2013			2012			2011
Balance at beginning of the fiscal year	$	1,860		$	1,910		$	2,366
Decreases — tax positions in prior period		(234	)		(284	)		(172	)
Increases — tax positions in current period		37			234			74
Settlements and payments		(694	)		—			—
Lapse of statute of limitations		—			—			(358	)
Balance at end of the fiscal year	$	969		$	1,860		$	1,910

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, 2009.