Entity information:
F
.
Income Taxes
 
During fiscal
201
7,
we recorded U.S.-based domestic tax expense of
$2.2
million. During fiscal
2016,
we recorded U.S.-based domestic tax expense of
$3.6
million on U.S.-based income, which was offset by the release of our deferred tax asset valuation of
$193,000
resulting in a net domestic tax expense of
$3.4
million. The release of our deferred tax asset valuation was based on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets. The valuation allowance activity did
not
have any impact on the tax expense and related liability recorded for operating income recognized by NAIE during the years ended
June 
30,
2017
or
June 
30,
2016.
 
The provision for income taxes for the years
ended
June 
30
consisted of the following (in thousands):
 
   
201
7
    
2016
  
Current:
                
Federal
   $
1,791
     $
3,339
  
State
    
90
      
138
  
Foreign
    
646
      
629
  
Total current    
2,527
      
4,106
  
Deferred:
                
Federal
    
305
      
46
  
State
    
44
      
67
  
Valuation allowance
    
—
      
(193
 )
Total deferred    
349
      
(80
 )
Total provision for income taxes
   $
2,876
     $
4,026
  
 
Net deferred tax assets and deferred tax
liabilities as of
June 
30
were as follows (in thousands):
 
   
201
7
    
2016
  
Deferred tax assets:
                
Inventory capitalization
   $
438
     $
576
  
Inventory reserves
    
178
      
103
  
Pension liability
    
241
      
403
  
Accrued bonus
    
114
      
391
  
Net operating loss carry forward
    
240
      
298
  
Deferred rent
    
193
      
175
  
Accumulated depreciation and amortization
    
8
      
158
  
Stock-based compensation
    
195
      
154
  
Tax credit carry forward
    
176
      
138
  
Accrued vacation expense
    
111
      
130
  
Other, net
    
256
      
15
  
Total gross deferred tax assets
    
2,150
      
2,541
  
                 
Deferred tax liabilities:
                
Prepaid expenses
    
(148
 )    
(260
 )
Other, net
    
—
      
(54
 )
Deferred tax liabilities
    
(148
 )    
(314
 )
Valuation allowance
    
—
      
—
  
Net deferred tax assets
   $
2,002
     $
2,227
  
 
At
June
 
30,
2017,
we had state tax net operating loss carry forwards of approximately
$4.1
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 fiscal
2032,
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,
2017
and
June 
30,
2016.
 
We are subject to taxation in the U.S., Switzerland and various state jurisdictions. Our tax years for the fiscal year ended
June
 
30,
2014
 and forward are subject to examination by the U.S. tax authorities and our years for the fiscal year ended
June 30, 2007 
and forward are subject to examination by the state tax authorities. Our tax years for the fiscal year ended
June 
30,
2015
and forward are subject to examination by the Switzerland tax authorities.
 
NAIE
’s effective tax rate for Swiss federal, cantonal and communal taxes is approximately
17.5%.
NAIE had net income of
$3.1
million for the fiscal year ended
June 
30,
2017.
Undistributed earnings of NAIE amounted to approximately
$20.9
million at
June 
30,
2017.
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):
 
   
2017
    
2016
  
Income taxes computed at statutory federal income tax rate
   $
3,438
     $
4,614
  
State income taxes, net of federal income tax expense
    
95
      
179
  
Expenses not deductible for tax purposes
    
29
      
19
  
Foreign tax rate differential
    
(613
 )    
(514
 )
Adjust state deferred due to change in apportionment
    
6
      
(18
 )
Change in valuation allowance
    
—
      
(193
 )
Other, net
    
(79
 )    
(61
 )
Income tax provision as reported
   $
2,876
     $
4,026
  
Effective tax rate
    
28.4
 %    
29.7
 %