Note 11 - Income Taxes

12 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Text Block]

11. Income Taxes

The components of income before income taxes are as follows:

	Years ended
	June 30, 2012		June 30, 2011
Domestic	$	3,265,000	$	3,439,000
Foreign		1,078,000		(1,420,000	)
Total	$	4,343,000	$	2,019,000

The components of the income tax provision (benefit) are as follows:

	Years ended
	June 30, 2012			June 30, 2011
Federal tax	$	(4,194,000	)	$	60,000
State tax		144,000			126,000
Foreign tax		28,000			—
Total	$	(4,022,000	)	$	186,000

	Years ended
	June 30, 2012			June 30, 2011
Current	$	285,000		$	186,000
Deferred		(4,307,000	)		—
Total	$	(4,022,000	)	$	186,000

Significant components of the Company’s deferred tax assets and liabilities are as follows:

	Years ended
	June 30, 2012			June 30, 2011
Deferred tax assets:
Net operating loss carryforwards	$	14,127,000		$	15,611,000
Capital loss carryforwards		1,674,000			1,674,000
Accrued expenses		154,000			236,000
Expenses not currently deductible		152,000			224,000
Excess of book over tax depreciation		99,000			72,000
Excess of book over tax amortization		607,000			446,000
Deferred revenue		2,000			—
Total deferred tax assets		16,815,000			18,263,000
Deferred tax liabilities:
Customer list		2,435,000			2,561,000
Other liabilities		35,000			30,000
Total deferred tax liabilities		2,470,000			2,591,000
Deferred tax assets, net of liabilities		14,345,000			15,672,000
Valuation allowance		(11,691,000	)		(17,362,000	)
Net deferred tax asset (liability)	$	2,654,000		$	(1,690,000	)

The Company’s provision for income taxes resulted in effective tax rates attributable to loss from continuing operations that varied from the statutory federal income tax rate of 34%, as summarized in the table below.

	Years ended
	June 30, 2011			June 30, 2011
Expected federal income tax expense (benefit) from continuing operations at 34%	$	1,476,000		$	633,000
Expenses not deductible for income tax purposes		131,000			311,000
Amendment of prior year return		11,000			—
State income taxes, net of federal benefit		115,000			135,000
Change in valuation allowance for deferred tax assets		(5,671,000	)		(893,000	)
Other		(84,000	)		—
Income tax expense (benefit)	$	(4,022,000	)	$	186,000

The Company recorded tax (benefit) expense of $(4,022,000) and $186,000 for the year ended June 30, 2012 and June 30, 2011, respectively.

The income tax benefit recorded during fiscal year 2012 was the result of recognizing as a deferred tax asset the realizable portion of the Company’s U.S. net operating loss carryforwards.  The Company previously had reserved a valuation allowance against the entire amount of net operating loss carryforwards, recognizing no deferred tax asset because it did not have a sufficient history of profitable operations to support the recognition of the asset.  Since the Company has now established a sufficient history of consecutive profitable quarters, and projects continuing taxable profits, the valuation allowance against the U.S. net operating loss carryforwards was reduced in the fourth fiscal quarter by $4.3 million to recognize the portion of the net operating loss carryforwards projected to be utilized prior to expiration.  The Company continues to maintain a valuation allowance on the entirety of its U.S. capital loss carryforwards and state net operating loss carryforwards due to uncertainty about its ability to utilize such carryforwards.

As of June 30, 2012, the Company’s U.S. federal net operating loss carryforwards available to reduce future taxable income were $41.0 million, expiring at various dates through 2030.  The company has recorded a valuation allowance on $25.3 million of these carryforwards because they are subject to annual limitations under Internal Revenue Code Section 382 and are expected to expire before being utilized.  For tax year June 30, 2012, it is projected that approximately $3.5 million of net operating loss carryforwards will be utilized to offset taxable income in the current year.

In addition, as of June 30, 2012, the Company had foreign net operating loss carryforwards of approximately $19.6 million available to reduce future taxable income, and net deferred tax assets of $6.8 million.  The carryforwards expire between 2011 and 2029 for some jurisdictions; for other jurisdictions, the losses may be carried forward indefinitely.  The Company maintains a valuation allowance on the entire amount of its foreign deferred tax assets due to insufficient history of profitable operations.

The Company’s Canadian subsidiary, Rand A Technology Corporation, is currently being audited by the Canada Revenue Agency for tax years 2005 through 2009. Management believes that it has properly recorded the tax expense for the periods under review and expects no material adjustments to the respective returns or to its financial statements.