Income (loss) from continuing operations before income taxes for U.S. and foreign operations was as follows (in thousands):



	2012		2011		2010
U.S.	$	3,192	$	2,671	$	(3,065)
Foreign		2,183		1,432		1,389
Total	$	5,375	$	4,103	$	(1,676)

The income tax (provision) benefit reflected in the statement of income consists of the following (in thousands):



	2012		2011		2010
Current (provision) benefit:
U.S. Federal & State	$	(1,614)	$	(541)	$	523
Foreign		(829)		(235)		(468)
Deferred taxes
U.S.		(444)		(390)		1,651
Foreign		339		(287)		40
Total (provision) benefit	$	(2,548)	$	(1,453)	$	1,746

The Company’s deferred tax assets are substantially represented by the tax benefit of net operating losses, tax credit carry-forwards and the tax benefit of future deductions represented by timing differences for unrealized losses on investments, allowances for bad debts, warranty expenses, deferred revenue and inventory obsolescence. The Company has a valuation allowance for tax credit carry-forwards in the United States that it expects will more likely than not expire prior to the tax benefit being realized. The Company also has a valuation allowance for net operating loss carry-forwards for some of its foreign operations that it expects will more likely than not expire prior to the tax benefit being realized. The components of deferred tax assets were as follows (in thousands):



	2012		2011		2010

Benefit of net operating losses	$	6,136	$	5,481	$	7,379
Tax credit carry-forwards		4,685		4,486		4,240
Other, principally reserves		3,973		3,971		3,035
Deferred tax asset		14,794		13,938		14,654
Valuation allowance		(3,691)		(2,730)		(2,769)
Net deferred tax asset	$	11,103	$	11,208	$	11,885



Rate Reconciliation:
Provision at U.S. statutory rate	34.0%	34.0%	34.0%
Net effect of taxes on foreign activities	(1.1)%	1.6%	(9.3)%
Tax effect of U.S. permanent differences	(4.1)%	(3.1)%	21.8%
State taxes and other, net	0.6%	0.5%	(0.3)%
Adjustment of federal/foreign income taxes related to prior years	0.1%	3.3%	46.0%
Valuation allowance	17.9%	(0.9)%	12.0%
Effective tax rate	47.4%	35.4%	104.2%

No provision was made with respect to earnings as of June 30, 2012 that have been retained for use by foreign subsidiaries. It is not practicable to estimate the amount of unrecognized deferred tax liability for the undistributed foreign earnings. At June 30, 2012, the Company had net operating loss carry-forwards for federal income tax purposes of $16.3 million that expire in the years 2021 through 2032 and tax credit carry-forwards of $4.7 million of which $4.4 million expire in the years 2012 through 2031. Included in the federal net operating loss carry-forward is $6.3 million from the exercise of employee stock options, the tax benefit of which, when recognized, will be accounted for as an increase to additional paid-in-capital rather than a reduction of the income tax provision. The net change in the total valuation allowance for the years ended June 30, 2012, 2011 and 2010 was an increase of $961,000, a decrease of $39,000, and a decrease of $201,000, respectively.

On June 30, 2012, the Company had $1.2 million of unrecognized tax benefits, of which $1.2 million would affect the effective tax rate if recognized. As of June 30, 2011, the Company had $1.1 million of unrecognized tax benefits, of which $1.1 million would affect the effective tax rate if recognized. The Company’s policy is to classify interest and penalties related to unrecognized tax benefits as interest expense and income tax expense, respectively. As of June 30, 2012 there was no accrued interest or penalties related to uncertain tax positions recorded on the Company’s financial statements. For U.S. federal income tax purposes, the tax years 2009 through 2012 remain open to examination by government tax authorities. For German income tax purposes, the 2011 and 2012 tax years remain open to examination by government tax authorities.

The aggregate changes in the balance of unrecognized tax benefits were as follows (in thousands):



Year End June 30		2012
Balance, beginning of year	$	1,096
Increases for tax positions related to the current year		76
Balance, year end	$	1,172