Note 11 - Income Taxes

12 Months Ended

Jun. 30, 2015

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)	2015			2014			2013
Components of income before income taxes:
United States	$	7,697		$	3,121		$	2,369
Foreign		(183	)		(854	)		(1,754	)
Income before income taxes	$	7,514		$	2,267		$	615
Provision (benefit) for income taxes:
Current
U.S. federal	$	2,364		$	500		$	972
State and local		237			35			(440	)
Foreign		(12	)		(54	)		(57	)
Total current		2,589			481			475
Deferred		(226	)		856			263
Total provision for income taxes	$	2,363		$	1,337		$	738

(In thousands)	2015			2014			2013
Reconciliation to federal statutory rate:
Federal statutory tax rate		34.0	%		34.0	%		34.0	%
State and local taxes, net of federal benefit		2.4			6.9			17.0
Impact of foreign operations		0.7			1.2			(7.1	)
Federal and state tax credits		(3.7	)		(6.3	)		(34.1	)
Goodwill		--			0.1			133.6
Valuation allowance		(3.8	)		30.8			145.6
Domestic production activities deduction		(4.0	)		(2.8	)		(22.2	)
Uncertain tax position activity		(1.3	)		(11.3	)		(101.6	)
Contingent liability		--			—			(49.6	)
Other		2.1			6.4			4.5
Sale of subsidiary		5.0			—			—
Effective tax rate		31.4	%		59.0	%		120.1	%

The components of deferred income tax assets and (liabilities) at June 30, 2015 and 2014 are as follows:

(In thousands)	2015			2014
Reserves against current assets	$	273		$	74
Accrued expenses		2,881			2,366
Goodwill, acquisition costs and intangible assets		255			1,171
Deferred compensation		791			1,051
State net operating loss carryover and credits		1,889			1,991
Foreign net operating loss carryover and credits		—			4,465
Long term capital loss carryforward		4,272			—
U.S. Federal net operating loss carryover and credits		506			556
Deferred income tax asset before valuation reserve		10,867			11,674
Valuation reserve		(6,161	)		(6,450	)
Deferred income tax asset		4,706			5,224
Depreciation		(3,241	)		(3,985	)
Deferred income tax liability		(3,241	)		(3,985	)
Net deferred income tax asset	$	1,465		$	1,239

Reconciliation to the balance sheets as of June 30, 2015 and 2014:

(In thousands)	2015			2014
Deferred income tax asset included in:
Other current assets	$	3,154		$	2,439
Other long-term assets (liability)		(1,689	)		(1,200	)
Net deferred income tax asset	$	1,465		$	1,239

As of June 30, 2015 and 2014, the Company has recorded a deferred tax asset in the amount of $506,000 and $556,000, 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, 2015 and 2014, the Company has recorded a deferred state income tax asset in the amount of $1,716,000 and $1,727,000, respectively, net of federal tax benefits, related to non-refundable New York state tax credits. Related to fiscal year 2015, the Company has determined that a full valuation reserve is required. 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.  Related to fiscal year 2014, the Company has determined that this deferred state income tax asset requires a partial valuation reserve. As of June 30, 2015 and 2014, the Company has recorded a valuation reserve in the amount of $1,716,000 and $1,721,000, respectively. This activity netted to a state tax benefit of $5,000 in fiscal years 2015, and an additional state income tax expense of $489,000 (of which $362,000 related to the state tax code change), and $312,000 in fiscal years 2014, and 2013 respectively.

As of June 30, 2014, the Company recorded a deferred state income tax asset in the amount of $90,000 related to a state net operating loss carryover in Tennessee, and determined that a full valuation reserve was 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 determined this asset more likely than not, will not be realized. This deferred state income tax asset and related valuation reserve were written off when the Company’s former subsidiary in Tennessee was dissolved in the fourth quarter of fiscal 2015.

As of June 30, 2015 and 2014, 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, 2015, the Company had recorded deferred tax assets for the sale of its Canadian subsidiary related to a long term capital loss carryforward totaling $4,272,000. The Company has determined that this asset, more likely than not, will not be realized within the 5 year carryforward period and that a full valuation reserve is required. The long term capital loss carryforward will expire in June 30, 2020.

As of June 30, 2014, the Company had recorded deferred tax assets for its Canadian subsidiary related to net operating loss carryover and to research and development tax credits totaling $4,465,000. In view of the financial statements of this subsidiary and a series of loss years, the Company determined these assets, more likely than not, will not be realized. These deferred tax assets and related valuation reserves were written off when this Canadian subsidiary was sold in the first quarter of fiscal 2015.

Considering all issues discussed above, the Company has recorded valuation reserves of $6,161,000 and $6,450,000 as of June 30, 2015 and 2014, respectively.

The Company accounts for uncertain tax positions in accordance with Accounting Standards Codification 740-10. At June 30, 2015, tax, interest, and penalties, net of potential federal tax benefits, were $447,000, $292,000, and $152,000 respectively, of the total reserve for uncertain tax positions of $891,000. Of the $891,000 reserve for uncertain tax positions, $739,000 would have an unfavorable impact on the effective tax rate if recognized. At June 30, 2014, tax, interest, and penalties, net of potential federal tax benefits, were $485,000, $333,000, and $169,000, respectively, of the total reserve for uncertain tax positions of $987,000. Of the $987,000 reserve for uncertain tax positions, $819,000 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 $40,000 net tax benefit in fiscal 2015, a $147,000 net tax benefit in fiscal 2014, and a $540,000 net tax benefit in fiscal 2013 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 2015, 2014 and 2013 gross tax activity in the liability for uncertain tax positions was as follows:

(in thousands)	2015			2014			2013
Balance at beginning of the fiscal year	$	746		$	969		$	1,860
Decreases — tax positions in prior period		(134	)		(225	)		(234	)
Increases — tax positions in current period		75			2			37
Settlements and payments		—			—			(694	)
Lapse of statute of limitations		—			—			—
Balance at end of the fiscal year	$	687		$	746		$	969

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, 2012.