(10) Income Taxes

12 Months Ended

Jun. 30, 2016

Notes

(10) Income Taxes

(10)   Income Taxes

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

			Current	Deferred		Total
2016:
	U.S. federal	$	-	40,245	$	40,25
	State and local		-	24,306		24,306
		$	-	64,551	$	64,551
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)

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:

		2016		2015
Expected tax benefit	$	668,716	$	475,743
State taxes, net of federal tax benefit		63,844		58,661
R&D tax credit		86,659		28,916
Valuation allowance		(744,724)		(1,447,247)
Incentive stock options		(6,105)		(3,322)
Other, net		(3,839)		36,157
	$	64,551	$	(851,092)

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 (liabilities) – non-current:
	Inventory capitalization for income tax purposes	$	57,079	$	67,324
	Inventory reserve		162,146		139,832
	Warranty reserve		59,516		59,742
	Accrued product liability		5,875		9,918
	Allowance for doubtful accounts		151,730		162,803
	Property and equipment, principally due to differences in depreciation		(71,038)		(67,158)
	Research and development credit carryover		304,669		133,393
	Other intangibles		(62,448)		(68,970)
	Deferred gain on sale lease-back		863,370		874,235
	Operating loss carry forwards		721,074		-
	Valuation allowance		(2,191,973)		(1,447,247)
Total deferred income tax assets (liabilities) – non-current		$	-	$	(136,128)

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. However, there can be no assurance that the new strategic plans will result in profitability.

·         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, 2016. 

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. In accordance with accounting rules, management has implemented a full valuation allowance against all but approximately $65,000 of the tax benefit for fiscal year 2016.  The benefit left remaining is the result of certain adjustments to the deferred tax assets in the fourth quarter to true up all tax asset accounts. Any reversal of the valuation allowance will favorably impact the Company’s results of operations in the period of reversal.

The Company’s federal and state income tax returns for June 30, 2013, 2014 and 2015 are open tax years. The anticipated NOL carry ward from fiscal 2016 is $1,780,000.  The Company has no uncertain tax positions as of June 30, 2016.