Note F - Income Taxes

12 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

F. Income Taxes

During fiscal 2014 we recognized certain discrete items as part of our income tax calculations. These discrete items included (1) an expense to adjust the state deferred tax assets as a result of a change in the estimated state tax rate, (2) an expense to establish a valuation allowance on a portion of the deferred tax asset for the California net operating loss, (3) a net benefit of state taxes as a result of adjusting California apportionment and filing in other states for prior years, and (4) a true-up of the R&D credit claimed on the federal income tax return filed in the current quarter. 

In addition, during fiscal 2014, as a result of changes in California apportionment rules and the state nexus study which was completed during the year, we determined that $193,000 of the deferred tax asset for California net operating losses was not more likely than not to be realized.  As a result, we have established a valuation allowance on our net deferred tax assets for this amount. 

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

	2014			2013
Current:
Federal	$	559		$	(24	)
State		(370	)		(4	)
Foreign		343			271
		532			243
Deferred:
Federal		(264	)		218
State		213			62
Valuation allowance		193			—
		142			280
Provision for income taxes	$	674		$	523

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

	2014			2013
Deferred tax assets:
Allowance for doubtful accounts	$	28		$	49
Accrued vacation expense		101			108
Tax credit carry forward		51			4
Allowance for inventories		234			136
Stock-based compensation		157			126
Pension liability		238			279
Other, net		106			150
Deferred rent		13			89
Accumulated depreciation and amortization		911			846
Net operating loss carry forward		458			525
Total gross deferred tax assets	$	2,297		$	2,312
Deferred tax liabilities:
Prepaid expenses		(157	)		(151	)
Other		(10	)		(25	)
Deferred tax liabilities		(167	)		(176	)
Valuation allowance		(193	)		—
Net deferred tax assets	$	1,937		$	2,136

At June 30, 2014, we had state tax net operating loss carry forwards of approximately $7.8 million. Under California tax law, net operating loss deductions were suspended for tax years beginning in 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 2021, 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, 2014 and June 30, 2013.

NAIE’s effective tax rate for Swiss federal, cantonal and communal taxes is approximately 18.2%. NAIE had net income of $1.5 million for the fiscal year ended June 30, 2014. Undistributed earnings of NAIE amounted to approximately $12.9 million at June 30, 2014. 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 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):

	2014			2013
Income taxes computed at statutory federal income tax rate	$	913		$	711
State income taxes, net of federal income tax expense		(35	)		41
Expenses not deductible for tax purposes		19			39
Foreign tax rate differential		(297	)		(264	)
Return to provision – differences		(41	)		(4	)
Adjust state deferred due to change in apportionment		195			—
State tax planning – net savings		(239	)		—
Change in valuation allowance		193			—
Other, net		(34	)		—
Income tax provision as reported	$	674		$	523
Effective tax rate		25.1	%		25.0	%