E. Income Taxes

The provision for income taxes for the years ended June 30 consisted of the following (in thousands):


	2012			2011
Current:
Federal	$	873		$	—
State		416			151
Foreign		294			275

		1,583			426

Deferred:
Federal		525			225
State		(24	)		(47	)
Valuation allowance		—			(3,340	)

		501			(3,162	)

Provision (benefit) for income taxes	$	2,084		$	(2,736	)

Net deferred tax assets and deferred tax liabilities as of June 30 were as follows (in thousands):


	2012			2011
Deferred tax assets:
Allowance for doubtful accounts	$	45		$	24
Accrued vacation expense		147			122
Tax credit carry forward		—			80
Allowance for inventories		200			333
Stock-based compensation		193			203
Pension liability		216			228
Other, net		567			518
Deferred rent		196			287
Accumulated depreciation and amortization		563			360
Net operating loss carry forward		517			1,049

Total gross deferred tax assets	$	2,644		$	3,204
Deferred tax liabilities:
Prepaid expenses		(162	)		(160	)
Other		(312	)		(17	)

Deferred tax liabilities		(474	)		(177	)

Valuation allowance		—			—
Net deferred tax assets	$	2,170		$	3,027

At June 30, 2012, we had state tax net operating loss carry forwards of approximately $8.9 million. Under California tax law, net operating loss deductions were suspended for tax years beginning 2008, 2009, 2010, and 2011 and the carry forward periods of any net operating losses not utilized due to such suspension were extended. Our state tax loss carry forwards will begin to expire in 2019, unless used before their expiration.

Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the annual use of the net operating loss carry forwards and research and development tax credits could be limited by any greater than 50% ownership change during any three-year testing period. We did not have any ownership changes that met this criterion during the fiscal years ended June 30, 2012 and June 30, 2011.

NAIE’s effective tax rate for Swiss federal, cantonal and communal taxes is approximately 18.63%. NAIE had net income of $1.6 million for the fiscal year ended June 30, 2012. Undistributed earnings of NAIE amounted to approximately $10.1 million at June 30, 2012. These earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal taxes has been provided thereon.

A reconciliation of income tax provision (benefit) computed by applying the statutory federal income tax rate of 34% to net income before income taxes for the year ended June 30 is as follows (dollars in thousands):


	2012			2011
Income taxes computed at statutory federal income tax rate	$	2,123		$	774
State income taxes, net of federal income tax expense		265			68
Expenses not deductible for tax purposes		54			47
Foreign tax rate differential		(343	)		(176	)
Return to provision – differences		(15	)		(109	)
Change in valuation allowance, net		—			(3,340	)

Income tax provision (benefit) as reported	$	2,084		$	(2,736	)

Effective tax rate		33.4	%		(120.0	)%