Note 11 - Income Taxes

12 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 11 — INCOME TAXES

The following information is provided for the years ended June 30:

(In thousands)	2014			2013			2012
Components of income before income taxes:
United States	$	3,121		$	2,369		$	8,131
Foreign		(854	)		(1,754	)		(1,940	)
Income before income taxes	$	2,267		$	615		$	6,191
Provision (benefit) for income taxes:
Current
U.S. federal	$	500		$	972		$	2,543
State and local		35			(440	)		313
Foreign		(54	)		(57	)		(198	)
Total current		481			475			2,658
Deferred		856			263			309
Total provision for income taxes	$	1,337		$	738		$	2,967

(In thousands)	2014			2013			2012
Reconciliation to federal statutory rate:
Federal statutory tax rate		34.0	%		34.0	%		34.0	%
State and local taxes, net of federal benefit		6.9			17.0			6.6
Impact of foreign operations		1.2			(7.1	)		(4.1	)
Federal and state tax credits		(6.3	)		(34.1	)		(1.3	)
Goodwill		0.1			133.6			1.3
Valuation allowance		30.8			145.6			13.1
Domestic production activities deduction		(2.8	)		(22.2	)		(4.0	)
Uncertain tax position activity		(11.3	)		(101.6	)		(0.9	)
Contingent liability		--			(49.6	)		--
Other		6.4			4.5			3.2
Effective tax rate		59.0	%		120.1	%		47.9	%

The components of deferred income tax assets and (liabilities) at June 30, 2014 and 2013 are as follows:

(In thousands)	2014			2013
Reserves against current assets	$	74		$	370
Accrued expenses		2,366			1,686
Goodwill, acquisition costs and intangible assets		1,171			1,646
Deferred compensation		1,051			999
State net operating loss carryover and credits		1,991			1,991
Foreign net operating loss carryover and credits		4,465			4,256
U.S. Federal net operating loss carryover and credits		556			606
Deferred income tax asset before valuation reserve		11,674			11,554
Valuation reserve		(6,450	)		(5,750	)
Deferred income tax asset		5,224			5,804
Depreciation		(3,985	)		(3,709	)
Deferred income tax liability		(3,985	)		(3,709	)
Net deferred income tax asset	$	1,239		$	2,095

Reconciliation to the balance sheets as of June 30, 2014 and 2013:

(In thousands)	2014			2013
Deferred income tax asset included in:
Other current assets	$	2,439		$	2,056
Other long-term assets (liability)		(1,200	)		39
Net deferred income tax asset	$	1,239		$	2,095

As of June 30, 2014 and 2013, the Company has recorded a deferred tax asset in the amount of $556,000 and $606,000, respectively, related to U.S. Federal net operating loss and research and development credit carryovers acquired in the acquisition of Virticus Corporation.  The net operating losses will expire over a period of 3 years, beginning in June 30, 2029.  The research and development credits will expire over a period of 2 years, beginning in June 30, 2029.  The annual utilization is limited by Internal Revenue Code Section 382.  However, the Company has determined these assets, more likely than not, will be realized.

As of June 30, 2014 and 2013, the Company has recorded a deferred state income tax asset in the amount of $1,727,000 and $1,727,000, respectively, net of federal tax benefits, related to non-refundable New York state tax credits. The Company has determined that this deferred state income tax asset requires a partial valuation reserve. These credits do not expire, but pursuant to New York state legislation enacted in the Company’s quarter ending March 31, 2014, and effective for the Company’s tax year ending June 30, 2015, the Company has determined that this asset, more likely than not, will not be realized.  The legislation enacted in the quarter ending March 31, 2014, caused the Company to change the determination as of June 30, 2013 that only a partial valuation reserve was required. As of June 30, 2014 and 2013, the Company has recorded a valuation reserve in the amount of $1,721,000 and $1,231,000, respectively. This activity netted to an additional state income tax expense of $489,000 (of which $362,000 related to the state tax code change), $312,000, and $95,000 in fiscal years 2014, 2013, and 2012 respectively.

As of June 30, 2014 and 2013, the Company has recorded a deferred state income tax asset in the amount of $90,000 related to a state net operating loss carryover in Tennessee, and has determined that a full valuation reserve is required. The net loss carryover was created from a company that was previously sold. Because of the sale of this Tennessee-based company, the Company has determined this asset more likely than not, will not be realized. This activity netted to an additional state income tax expense of $0 in fiscal 2014, 2013 and 2012. The Tennessee net operating loss carryover will expire over a period of 7 years, beginning in June 30, 2019.

As of June 30, 2014 and 2013, the Company has recorded a deferred state income tax asset in the amount of $173,000 related to a state net operating loss carryover and a state research and development credit in Oregon acquired during the acquisition of Virticus Corporation. The Company has determined this asset more likely than not, will not be realized and that a full valuation reserve is required. The Oregon net operating loss will expire over a period of 4 years, beginning in June 30, 2027.  The Oregon research and development credit will expire over a period of 2 years, beginning in June 30, 2015.

As of June 30, 2014 and 2013, the Company has recorded deferred tax assets for its Canadian subsidiary related to net operating loss carryover and to research and development tax credits totaling $4,466,000 and $4,256,000, respectively. In view of the financial statements of this subsidiary and a current series of loss years, the Company has determined these assets, more likely than not, will not be realized. The Canada net operating loss carryover will expire over a period of 9 years, beginning in June 30, 2026.  The Canada research and development credit will expire over a period of 8 years, beginning in June 30, 2027.

Considering all issues discussed above, the Company has recorded valuation reserves of $6,450,000 and $5,750,000 as of June 30, 2014 and 2013, respectively.

The Company accounts for uncertain tax positions in accordance with Accounting Standards Codification 740-10. At June 30, 2014, tax and interest, net of potential federal tax benefits, were $485,000 and $333,000 respectively, of the total reserve for uncertain tax positions of $987,000. Additionally, penalties were $169,000 of the reserve at June 30, 2014. Of the $987,000 reserve for uncertain tax positions, $819,000 would have an unfavorable impact on the effective tax rate if recognized. At June 30, 2013, tax and interest, net of potential federal tax benefits, were $630,000 and $395,000, respectively, of the total reserve for uncertain tax positions of $1,244,000. Additionally, penalties were $219,000 of the reserve at June 30, 2013. Of the $1,244,000 reserve for uncertain tax positions, $1,025,000 would have an unfavorable impact on the effective tax rate if recognized. The liability for uncertain tax positions is included in Other Long-Term Liabilities.

The Company recognized a $147,000 tax benefit in fiscal 2014, a $540,000 tax benefit in fiscal 2013, and a $9,000 tax benefit in fiscal 2012 related to the change in reserves for uncertain tax positions. The Company is recording estimated interest and penalties related to potential underpayment of income taxes as a component of tax expense in the Consolidated Statements of Operations. The reserve for uncertain tax positions is not expected to change significantly in the next twelve months.

The fiscal 2014, 2013 and 2012 gross tax activity in the liability for uncertain tax positions was as follows:

(in thousands)	2014			2013			2012
Balance at beginning of the fiscal year	$	969		$	1,860		$	1,910
Decreases — tax positions in prior period		(225	)		(234	)		(284	)
Increases — tax positions in current period		2			37			234
Settlements and payments		--			(694	)		—
Lapse of statute of limitations		--			—			—
Balance at end of the fiscal year	$	746		$	969		$	1,860

The Company files a consolidated federal income tax return in the United States, and files various combined and separate tax returns in several foreign, state, and local jurisdictions. With limited exceptions, the Company is no longer subject to U.S. Federal, state and local tax examinations by tax authorities for fiscal years ending prior to June 30, 2010.

The Company is no longer subject to Canada Federal and provincial tax examinations by tax authorities for fiscal years ending prior to June 30, 2010.