Note 8 - Income Taxes

12 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Text Block]

8. INCOME TAXES

Income tax expense is as follows (in thousands):

	For the Year Ended June 30,
	2012		2011			2010
Current:
Federal	$	2,800	$	1,854		$	1,389
State		472		802			472
Foreign		146		306			283
Total current expense		3,418		2,962			2,144
Deferred:
Federal		146		(294	)		(613	)
State		27		(55	)		(115	)
Foreign		-		(8	)		-
Total deferred expense (benefit)		173		(357	)		(728	)
Total income tax expense	$	3,591	$	2,605		$	1,416

Temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities that give rise to significant portions of deferred income taxes as of June 30 are as follows (in thousands):

	2012			2011
Deferred tax asset:
Net operating loss carryforwards	$	108		$	161
Stock-based compensation		719			665
State research and development credit		74			84
Intangibles		1,154			747
Reserves and accruals deductible in different periods		1,016			866
Total deferred tax assets		3,071			2,523
Less: valuation allowance		(182	)		(245	)
	$	2,889		$	2,278
Deferred tax liability:
Fixed Assets	$	(50	)	$	(121	)
Goodwill		(893	)		(618	)
Software cost capitalization		(5,443	)		(4,862	)
Total deferred tax liabilities		(6,386	)		(5,601	)
Net deferred tax liability	$	(3,497	)	$	(3,323	)
Presented as follows:
Current asset	$	1,038		$	866
Long-term liability		(4,535	)		(4,189	)
	$	(3,497	)	$	(3,323	)

Domestic and foreign income before income taxes is (in thousands):

	For the Year Ended June 30,
	2012		2011		2010
Domestic	$	10,693	$	7,798	$	3,555
Foreign		443		1,099		1,103
	$	11,136	$	8,897	$	4,658

The difference between the tax expenses reflected on the financial statements and the amounts calculated using the federal statutory income tax rates are as follows (in thousands):

	For the Year Ended June 30,
	2012			2011			2010
Federal income tax at statutory rate	$	3,786		$	3,025		$	1,584
State income tax, net of Federal benefit		329			493			236
Research and development tax credits		(214	)		(369	)		(359	)
Section 199 manufacturing deduction		(276	)		(277	)		-
Foreign tax rate difference		12			(76	)		(92	)
Write-off of deferred tax assets associated with forfeited vested non-qualified stock options		-			-			29
Other, including non-deductible expenses		(46	)		(191	)		18
	$	3,591		$	2,605		$	1,416

As of June 30, 2012, the Company has net operating loss carryforwards of approximately $284,000 available to reduce future federal taxable income.  This entire amount is subject to limitations in accordance with Section 382 of the Internal Revenue Code of 1986, as amended.  Additionally, the net operating loss carryforwards may be subject to further limitations should certain future ownership changes occur.  The net operating losses expire in various years through 2015.  As of June 30, 2012, the Company has recorded a valuation allowance for the entire amount of any deferred tax assets relating to this net operating loss and certain state tax credits.

At June 30, 2012, U.S. taxes have not been paid on approximately $4,596,000 of undistributed earnings of foreign subsidiaries as these undistributed earnings have been invested or are expected to be permanently invested offshore. If, in the future, these earnings are repatriated to the U.S., or if such earnings are determined to be remitted in the foreseeable future, additional tax provisions would be required. Due to complexities in the tax laws and the assumptions that would have to be made, it is not practicable to estimate the amounts of income taxes that would have to be paid.

In June 2006, the FASB issued guidance related to recognition threshold and measurement attributes for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes.  The guidance also addresses de-recognition, classification, interest and penalties and accounting in interim periods and requires expanded disclosures with respect to the uncertainty in income taxes.  This guidance was effective for the Company on July 1, 2007.

Under this guidance, the Company applied the “more-likely-than-not” recognition threshold to all tax positions, commencing at the adoption date, which resulted in an increase of $278,000 in the liability for unrecognized tax benefits that was accounted for as a decrease to July 1, 2007 retained earnings.  Such adjustment was recorded in the fourth quarter of fiscal 2008 based on evaluation of new information which management became aware of during such period.  As of the date of adoption and after the impact of recognizing the increase in liability noted above, the Company’s unrecognized tax benefits (before federal benefit) totaled $404,000 at June 30, 2008.  As of June 30, 2011, the balance of unrecognized tax benefits was $514,000 and the balance at June 30, 2012 was $624,000 which related to tax positions which, if recognized, would affect the annual effective tax rate.  The Company recognizes accrued interest and penalties in income tax expense.  Accrued interest and penalties at June 30, 2012 and 2011 amounted to $168,000 and $180,000, respectively.

The change in the Company’s unrecognized tax benefits for fiscal years ended June 30, 2012 and 2011 are as follows (in thousands):

Balance, June 30, 2010	$	407
Additions – current period positions		107
Reductions		-
Settlements		-
Balance, June 30, 2011		514
Additions – current period positions		110
Reductions		-
Settlements		-
Balance, June 30, 2012	$	624

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions.  In general, the Company’s filed income tax returns are no longer subject to examination by the respective taxing authorities for years ended before June 30, 2009.  However, to the extent utilized, the Company’s net operating loss carryforwards originating in closed years, remain subject to examinations.  

The change in valuation allowance amounts to a decrease of $63,000 in 2012.

Provision has not been made for U.S. or additional foreign taxes for undistributed earnings of the Company’s U.K. subsidiary as those earning have been and the Company expects that they will continue to be reinvested.  Determination of the amount of unrecognized deferred tax liability with respect to such earnings is not practicable.  The Company believes that the amount of additional taxes that might be payable on the earnings of JAC, if remitted, would be partially offset by the U.S. foreign tax credits.