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Income Taxes | 12 Months Ended
--- | ---
Jun. 30, 2013
Income Taxes | 5. INCOME TAXES Income / (loss) before income tax provision consisted of the following (in thousands):
| Year Ended June 30, |
--- | --- | ---
| 2013 |  |  | 2012 |  |  | 2011 |
United States | $ |  | (561 | ) |  | $ |  | (3,441 | ) |  | $ |  | 2,918 |
Foreign |  | 1,624 |  |  |  | 9 |  |  |  | 5,650 |
Income / (loss) before income tax provision | $ |  | 1,063 |  |  | $ |  | (3,432 | ) |  | $ |  | 8,568 |
The following table reconciles the federal statutory tax rate to the effective tax rate of the income tax provision:
| Year Ended June 30, |
--- | --- | ---
| 2013 |  |  | 2012 |  |  | 2011 |
|  |  |  |  |  | (a) |  |  |  | (a) |
Federal statutory income tax rate |  | 34.0 |  | % |  |  | 34.0 |  | % |  |  | 34.0 |  | %
Current state taxes |  | 56.9 |  |  |  | 3.4 |  |  |  | 2.7 |
Foreign rate differential |  | 24.1 |  |  |  | (9.4 | ) |  |  | (20.4 | )
Permanent items |  | 0.0 |  |  |  | (0.5 | ) |  |  | 0.3 |
Expired net operating losses |  | 313.6 |  |  |  | (47.9 | ) |  |  | 3.9 |
Research and development credits |  | (26.3 | ) |  |  | 2.3 |  |  |  | (1.7 | )
Foreign withholding tax |  | 4.5 |  |  |  | 0.0 |  |  |  | 0.0 |
Nondeductible secondary offering e xpenditures |  | 10.2 |  |  |  | 0.0 |  |  |  | 0.0 |
Other items |  | 7.2 |  |  |  | (2.9 | ) |  |  | (5.0 | )
Net change in valuation allowance |  | (388.5 | ) |  |  | 9.6 |  |  |  | (11.4 | )
Effective tax rate |  | 35.7 |  | % |  |  | (11.4 | )% |  |  | 2.4 |  | %
The components of the income tax provision are as follows (in thousands):
| Year Ended June 30, |
| 2013 |  |  | 2012 |  |  | 2011 |
|  |  |  |  |  | (a) |  |  |  | (a) |
Federal | $ |  | 48 |  |  | $ |  | 23 |  |  | $ |  | (7 | )
Foreign |  | 325 |  |  |  | 341 |  |  |  | 178 |
State |  | 6 |  |  |  | 26 |  |  |  | 25 |
Income tax provision | $ |  | 3 7 9 |  |  | $ |  | 390 |  |  | $ |  | 196 |
(a) | As adjusted, see Note 1 As of June 30, 2013, we had federal and state net operating loss carryforwards of approximately $193.9 million and $39.8 million, respectively. The net operating loss carryforwards will expire at various dates beginning in 2013 through 2033, if not utilized. Partial amounts of the net operating loss are generated from the exercise of options and the tax benefit would be credited directly to stockholders’ equity. We also had federal research and development credit carryforwards of approximately $2.2 million as of June 30, 2013 which will expire at various dates beginning in 2016 through 2033, if not utilized. The California research and development credit carryforwards are approximately $3.0 million as of June 30, 2013 and have an indefinite carryover period. We also have U.K. net operating loss carryforwards of approximately $6.9 million as of June 30, 2013.
Utilization of the net operating losses and credits may be subject to a substantial limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. Deferred tax assets and liabilities reflect the net tax effects of net operating loss and credit carryforwards and of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities for federal and state income taxes are as follows (in thousands):
| June 30, |
--- | --- | ---
| 2013 |  |  | 2012 |
Deferred tax assets: |  |  |  |  |  | (a) |
Net operating loss carryforwards | $ |  | 68,141 |  |  | $ |  | 73,087 |
Research credits |  | 4,171 |  |  |  | 3,688 |
Capitalized research and development |  | 4 |  |  |  | 4 |
Stock compensation |  | 473 |  |  |  | 599 |
Accruals and Reserves |  | 139 |  |  |  | 348 |
Other |  | 350 |  |  |  | 504 |
Total deferred tax assets |  | 7 3,278 |  |  |  | 78,230 |
Valuation allowance for deferred tax assets |  | (7 3,216 | ) |  |  | (78,168 | )
Net deferred tax assets, included in other assets | $ |  | 62 |  |  | $ |  | 62 |
(a) As a djusted, see Note 1 ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes our historical operating performance and the reported cumulative net losses in all prior years, we have provided a full valuation allowance against our net deferred tax assets except the deferred tax asset related to India as we believe it is more likely than not that those assets will be realized. The net valuation allowance decreased by $5.0 million for year ended June 30, 2013 compared to the increase of $924,000 and $670,000 for years ended June 30, 2012 and June 30, 2011, respectively. Deferred tax liabilities have not been recognized for $4.5 million of undistributed earnings of our foreign subsidiaries at June 30, 2013. It is our intention to reinvest such undistributed earnings indefinitely in our foreign subsidiaries. If we distribute these earnings, in the form of dividends or otherwise, we would be subject to both United States income taxes (net of applicable foreign tax credits) and withholding taxes payable to the foreign jurisdiction. Uncertain Tax Positions We apply ASC 740, Income Taxes, related to uncertainty in income taxes. The aggregate changes in the balance of our gross unrecognized tax benefits during fiscal years 2013, 2012 and 2011 were as follows (in thousands):
| Year Ended June 30, |
--- | --- | ---
| 2013 |  |  | 2012 |  |  | 2011 |
Beginning balance | $ |  | 1,1 9 3 |  |  | $ |  | 1,163 |  |  | $ |  | 1,127 |
Increases in balances related to tax positions taken during current periods |  | 585 |  |  |  | 30 |  |  |  | 36 |
Decrease in balances related to tax positions taken during current periods |  | — |  |  |  | — |  |  |  | — |
Ending balance | $ |  | 1,778 |  |  | $ |  | 1,193 |  |  | $ |  | 1,163 |
For fiscal year 2013, 2012, and 2011 if total unrecognized tax benefits were recognized, approximately $394,00 0, $394,000 and $0 respectively, would affect the effective income tax rate. We recognize accrued interest and penalties related to unrecognized tax benefits in the income tax provision, and the amounts were insignificant for the last three fiscal years. We do not anticipate the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. We file income tax returns in the United States, and various state and foreign jurisdictions. In these jurisdictions tax years, 1994-201 2 remain subject to examination by the appropriate governmental agencies due to tax loss carryovers from those years.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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