8. Income Taxes

The components of income tax expense (benefit) for each of the years in the three-year period ended June 30, 2013 consist of the following (in thousands):



	For the fiscal year ended June 30,
	2013						2012						2011
	Current		Deferred		Total		Current		Deferred		Total		Current		Deferred		Total
Federal	$	-	$	1	$	1	$	-	$	32	$	32	$	(3)	$	-	$	(3)
State		13		-		13		20		3		23		11		-		11
Total	$	13	$	1	$	14	$	20	$	35	$	55	$	8	$	-	$	8

A reconciliation of our statutory tax expense (benefit) to our actual tax expense (benefit) is as follows:



	For the years ended June 30,
	2013		2012		2011
Federal statutory rate at 34 percent	$	(1,459)	$	(1,578)	$	(1,267)
State taxes, net of federal tax expense (benefit) and state valuation allowance		(128)		(135)		(125)
Nondeductible expenses		17		49		47
Stock-based compensation		55		60		52
General business credits		-		-		(20)
Adjustments to net operating losses and credits		5,562		3,125		4,236
Other		3		3		(9)
Change in valuation allowance		(4,036)		(1,469)		(2,906)
	$	14	$	55	$	8

The components of our net deferred tax assets and liabilities are as follows (in thousands):



	June 30,
	2013		2012
Deferred Tax Assets:
Non-Current:
Net operating loss carry forward	$	27,131	$	30,730
Definite-lived intangibles		2,414		2,783
Alternative minimum tax credit		3		3
Federal and state general business credits		865		862
Non-qualified stock-based compensation		536		525
Property, plant and equipment		64		62
Current:
Accrued expenses		318		434
Gross deferred tax assets		31,331		35,399
Deferred Tax Liabilities:
Non-Current:
Amortization of indefinite-lived intangible		(36)		(35)
Contingent consideration on acquisition		(1,155)		(1,136)
Gross deferred tax liabilities		(1,191)		(1,171)
Net deferred tax assets before valuation allowance		30,140		34,228
Less: valuation allowance		(30,176)		(34,263)
Total net deferred tax liability	$	(36)	$	(35)

The valuation allowance for deferred tax assets as of June 30, 2013 and 2012 was $30,176,000 and $34,263,000, respectively. The total valuation allowance decreased by $4,087,000 for the year ended June 30, 2013. A significant portion of the current year decrease in valuation allowance is attributable to expiring NOL carryforward tax benefits. In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realized of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

Deferred tax assets relating to the tax benefits of employee stock option grants have been reduced to reflect exercises through the year ended June 30, 2013. Certain exercises resulted in tax deductions in excess of previously recorded tax benefits. The Company’s Federal NOL carryforwards of $73,154,000 referenced below as of June 30, 2013 include $541,000 of income tax deductions in excess of previously recorded tax benefits. Although these additional tax deductions are reflected in NOL carryforwards referenced below, the related tax benefit of $184,000 will not be recognized until the deductions reduce taxes payable. Accordingly, since the tax benefit does not reduce the Company’s current taxes payable in 2013, these tax benefits are not reflected in the Company’s deferred tax assets presented above. The tax benefit of these excess deductions will be reflected as a credit to additional paid-in capital when and if recognized.

At June 30, 2013, the expiration dates and amounts of our net operating loss carryforwards and credits for federal income tax purposes are as follows (in thousands):



	Net Operating
Years expiring (in thousands)	Loss		Credits
June 30, 2014	$	-	$	-
June 30, 2015 – June 30, 2019		15,555		-
June 30, 2020 – June 30, 2024		25,315		115
June 30, 2025 – June 30, 2033		32,284		544

	$	73,154	$	659

The Company completed a Section 382 analysis of the net operating loss carryforwards through February 1, 2006. Through that analysis it was determined that none of the remaining pre-February 1, 2006 net operating loss carryforwards are subject to a Section 382 limitation. Net operating losses generated since February 1, 2006 have not been analyzed for any Section 382 limitations and therefore may or may not be fully realizable in the future.

As of June 30, 2013, the Company had approximately $14,000 of unrecognized tax benefits related to state tax liabilities which would favorably impact the effective income tax rate in any future period, if recognized. During the year ended June 30, 2013, there were no significant changes to the total gross unrecognized tax benefits. It is expected that the amount of unrecognized tax benefits for positions which we have identified will not change significantly in the next twelve months.

We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. We file income tax returns in the United States (U.S.) federal jurisdiction as well as various state jurisdictions. We are subject to U.S. federal income tax examinations by tax authorities for fiscal years after 1998 due to unexpired net operating loss carryforwards originating in and subsequent to that fiscal year. Income tax examinations we may be subject to for the various state taxing authorities vary by jurisdiction.