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7. INCOME TAXES
 12 Months Ended
Jun. 30, 2012
Income Tax Disclosure [Abstract]  
NOTE 7 - INCOME TAXES

 Income tax provision (benefit) from continuing operations for the years ended June 30, 2012 and 2011 consists of the following:

 

   Year  Ended June 30,
   2012  2011
Current income tax expense (benefit):          
Federal  $(18,923)  $2,571,668 
State   (1,034,425)   729,694 
    (1,053,348)   3,301,362 
Deferred income tax expense (benefit):          
Federal   143,007    119,250 
State   (8,668)   (1,941)
Foreign   (294,782)   (64,876)
    (160,443)   52,433 
Provision for income taxes  $(1,213,791)  $3,353,795 

 

The provision (benefit) for income taxes reconciles to the amount computed by applying effective federal statutory income tax rate to income (loss) before provision for income taxes as follows:

 

   Year Ended June 30,
   2012  %  2011  %
Federal tax provision (benefit), at statutory rate of 34%, earnings (loss) before income taxes and extraordinary items  $(725,457)   (34.0)  $2,787,569    34.0 
State tax, net of federal tax benefit   (688,440)   (32.3)   480,317    5.9 
Nondeductible expenses   66,692    3.1    280,185    3.4 
R&D Credits   (20,125)   (0.9)   (66,619)   (0.8)
Uncertain tax position   (67,336)   (3.2)   20,746    0.3 
Foreign rate difference   376,453    17.6    (166,426)   (2.0)
Other   (155,578)   (7.3)   18,023    0.2 
Provision (benefit) for income taxes  $(1,213,791)   (56.9)  $3,353,795    41.0 

 

 

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows:

 

   June 30, 2012  June 30, 2011
Deferred tax asset:          
Net operating losses  $1,680,163   $1,782,062 
State tax   (2,586)   190,948 
Intangibles   (193,870)   (299,957)
Other, net   54,262    6,097)
Total deferred tax assets   1,537,969    1,679,150 
Less valuation allowance   —      —   
Net deferred tax asset  $1,537,969   $1,679,150 

 

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We have evaluated the available evidence supporting the realization of our gross deferred tax assets, including the amount and timing of future taxable income, and have determined it is more likely than not that the assets will be fully realized and no valuation allowance is necessary as of June 30, 2012. As of June 30, 2012, we have federal and state net operating loss carryforwards of approximately $4.4 million and $1.7 million, which expire through 2023 and 2017, respectively. The utilization of net operating loss carryforwards may be subject to limitations under provision of the Internal Revenue Code Section 382 and similar state provisions.

 

We adopted the provision of ASC 740 related to accounting for uncertain tax positions effective July 1, 2007, which prescribes a recognition threshold and measurement process for recording in the financial statements, uncertain tax positions taken or expected to be taken in a tax return. Under this provision, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. Tax benefits of an uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained based on technical merits. 

 

A reconciliation of the beginning and ending balance of unrecognized tax benefits, which are included in accrued liabilities on the balance sheet, is as follows:

 

Balance as of June 30, 2010   73,431 
Gross increase or (decrease)   (20,746)
Balance as of June 30, 2011  $94,177 
Gross increase or (decrease)   6,095 
Reversal of reserve on unrecognized tax benefits   (73,431)
Balance as of June 30, 2012  $26,841 

 

We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months. ASC 740 requires us to accrue interest and penalties where there is an underpayment of taxes based on our best estimate of the amount ultimately to be paid. Our policy is to recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense. We have not recorded any interest or penalties as the liability associated with the unrecognized tax benefits is immaterial. We are subject to taxation in the U.S., various state and foreign jurisdictions. We are no longer subject to U.S. examination for years before 2009 by the federal taxing authority, and years before 2005 by state taxing authorities.