(9) Income Taxes

12 Months Ended

Jun. 30, 2015

Notes

(9) Income Taxes

(9)  Income Taxes

Income tax benefit (provision) for the years ended June 30 consists of:

			Current	Deferred		Total
2015:
	U.S. federal	$	(16,981)	(678,953)	$	(695,934)
	State and local		14,580	(169,738)		(155,158)
		$	(2,401)	(848,691)	$	(851,092)
2014:
	U.S. federal	$	-	107,439	$	107,439
	State and local		-	18,584		18,584
		$	-	126,023	$	126,023

The actual income tax benefit (provision) differs from the “expected” tax benefit (provision) computed by applying the U.S. federal corporate income tax rate of 34% to income (loss) before income taxes for the years ended June 30, are as follows:

		2015		2014
Expected tax benefit (provision)	$	475,743	$	135,036
State taxes, net of federal tax benefit		58,661		12,265
R&D tax credit		28,916		-
Valuation allowance		(1,447,247)		-
Incentive stock options		(3,322)		(4,852)
Other, net		36,157		(16,426)
	$	(851,092)	$	126,023

Deferred income tax assets and liabilities related to the tax effects of temporary differences are as follow as of June 30:

				2015		2014
Net deferred income tax assets – current:
	Inventory capitalization for income tax purposes		$	67,324	$	68,748
	Inventory reserve			139,832		130,788
	Warranty reserve			59,742		61,524
	Accrued product liability			9,918		20,970
	Allowance for doubtful accounts			162,803		126,889
	Valuation allowance			(439,619)		-
		Total deferred income tax assets – current	$	-	$	408,919

			2015		2014
Net deferred income tax assets (liabilities) – non-current:
	Property and equipment, principally due to differences in depreciation	$	(67,158)	$	(255,835)
	Research and development credit carryover		133,393		370,757
	Other intangibles		(68,970)		(91,822)
	Deferred gain on sale lease-back		874,235		-
	Operating loss carry forwards		-		280,544
	Valuation allowance		(1,007,628)		-
Total deferred income tax assets (liabilities) – non-current		$	(136,128)	$	303,644

A valuation allowance is required when there is significant uncertainty as to the realizability of deferred tax assets. The ability to realize deferred tax assets is dependent upon the Company’s ability to generate sufficient taxable income within the carryforward periods provided for in the tax law for each tax jurisdiction. The Company has considered the following possible sources of taxable income when assessing the realization of its deferred tax assets:

·         future reversals of existing taxable temporary differences; 

·         future taxable income or loss, exclusive of reversing temporary differences and carryforwards; 

·         tax-planning strategies; and 

·         taxable income in prior carryback years. 

The Company considered both positive and negative evidence in determining the need for a valuation allowance, including the following:

Positive evidence:

·         Current forecasts indicate that the Company will generate pre-tax income and taxable income in the future.

·         A majority of the Company’s tax attributes have indefinite carryover periods.

Negative evidence:

·         The Company has several years of cumulative losses as of June 30, 2015. 

The Company places more weight on objectively verifiable evidence than on other types of evidence and management currently believes that available negative evidence outweighs the available positive evidence. Management has therefore determined that the Company does not meet the "more likely than not" threshold that deferred tax assets will be realized. Accordingly, a valuation allowance is required.  Any reversal of the valuation allowance will favorably impact the Company’s results of operations in the period of reversal.

At June 30, 2015, the Company recorded a full valuation allowance against its deferred tax assets.

The Company had available at June 30, 2014, estimated federal and state net operating loss (“NOL”) carry forwards of $745,605, which were used for federal and state income tax purposes  to offset the gain on the sale lease-back transaction (see Note 8). 

The Company’s federal and state income tax returns for June 30, 2012, 2013 and 2014 are open tax years.