E. Income Taxes

The provision for income taxes for the years ended June 30 consisted of the following (in thousands):


	2013			2012
Current:
Federal	$	(24	)	$	873
State		(4	)		416
Foreign		271			294

		243			1,583

Deferred:
Federal		218			525
State		62			(24	)

		280			501

Provision (benefit) for income taxes	$	523		$	2,084

Net deferred tax assets and deferred tax liabilities as of June 30 were as follows (in thousands):


	2013			2012
Deferred tax assets:
Allowance for doubtful accounts	$	49		$	45
Accrued vacation expense		108			147
Tax credit carry forward		4			0
Allowance for inventories		136			200
Stock-based compensation		126			193
Pension liability		279			216
Other, net		150			567
Deferred rent		89			196
Accumulated depreciation and amortization		846			563
Net operating loss carry forward		525			517

Total gross deferred tax assets	$	2,312		$	2,644
Deferred tax liabilities:
Prepaid expenses		(151	)		(162	)
Other		(25	)		(312	)

Deferred tax liabilities		(176	)		(474	)

Net deferred tax assets	$	2,136		$	2,170

At June 30, 2013, we had state tax net operating loss carry forwards of approximately $8.6 million. Under California tax law, net operating loss deductions were suspended for tax years beginning in 2008, 2009, 2010 and 2011 and the carry forward periods of any net operating losses not utilized due to such suspension were extended. Our state tax loss carry forwards will begin to expire in 2022, unless used before their expiration.

Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the annual use of the net operating loss carry forwards and research and development tax credits could be limited by any greater than 50% ownership change during any three-year testing period. We did not have any ownership changes that met this criterion during the fiscal years ended June 30, 2013 and June 30, 2012.

NAIE’s effective tax rate for Swiss federal, cantonal and communal taxes is approximately 18.63%. NAIE had net income of $1.3 million for the fiscal year ended June 30, 2013. Undistributed earnings of NAIE amounted to approximately $11.4 million at June 30, 2013. These earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal taxes has been provided thereon.

A reconciliation of income tax provision computed by applying the statutory federal income tax rate of 34% to net income before income taxes for the year ended June 30 is as follows (dollars in thousands):


	2013			2012
Income taxes computed at statutory federal income tax rate	$	711		$	2,123
State income taxes, net of federal income tax expense		41			265
Expenses not deductible for tax purposes		39			54
Foreign tax rate differential		(264	)		(343	)
Return to provision – differences		(4	)		(15	)

Income tax provision as reported	$	523		$	2,084

Effective tax rate		25.0	%		33.4	%