INCOME TAXES

12 Months Ended

Jun. 30, 2013

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 7 – INCOME TAXES

The provision (benefit) for income taxes for the years ended June 30, 2013 and 2012 are as follows: 

	2013			2012
Current:
Federal	$	5,000		$	(435,000	)
State		7,000			(6,000	)
Deferred:
Federal		(41,000	)		—
State		(10,000	)		—
Benefit from income taxes	$	(39,000	)	$	(441,000	)

A reconciliation of the expected tax to the amount computed by applying the federal statutory income tax rates to loss before income taxes for the years ended June 30, 2013 and 2012 is as follows: 

	2013			2012
Federal income tax benefit at the statutory rate		(34	)%		(34	)%
Change in valuation allowance against net deferred tax assets		45			26
State income taxes, net of federal tax benefit		(7	)		(9	)
State income tax rate adjustment		(1	)		(10	)
Tax incentives		(7	)		(7	)
Non-deductible items		2			3
Benefit from income taxes		(2	)%		(31	)%

Deferred income tax assets and liabilities in the accompanying consolidated balance sheets at June 30, 2013 and 2012 are as follows: 

	2013			2012
Deferred tax assets/(liabilities) — current:
Accrued expenses	$	206,000		$	332,000
Inventories		504,000			282,000
Net operating losses		—			—
State taxes		2,000			(19,000	)
Valuation allowance		(653,000	)		(486,000	)
	$	59,000		$	109,000

	2013			2012
Deferred tax assets/(liabilities) — non-current:
Income tax credit carry forwards	$	1,381,000		$	1,235,000
Net operating losses		1,092,000			534,000
Intangible assets		350,000			430,000
Deferred rent		149,000			163,000
State taxes		16,000			37,000
Depreciation		(291,000	)		(405,000	)
Share based compensation		32,000			—
Unrealized gain on investment		(2,000	)		—
Valuation allowance		(2,786,000	)		(2,103,000	)
	$	(59,000	)	$	(109,000	)

We have a federal net operating loss carry forward at June 30, 2013 in the amount of $1,701,000, which expires in 2033, and a state net operating loss carry forward at June 30, 2013 in the amount of $6,134,000, which expires at various dates from 2018 through 2033. Federal and state tax credit carry forwards amount to $867,000 and $514,000, respectively, at June 30, 2013. These credit carry forwards will expire at various dates from 2014 through 2033.

Significant management judgment is required in determining our provision for income taxes and the recoverability of our deferred tax asset. Such determination is based primarily on our historical taxable income, with some consideration given to our estimates of future taxable income by jurisdictions in which we operate and the period over which our deferred tax assets will be recoverable. Due to cumulative taxable losses in the three years preceding 2013, we have maintained a full valuation allowance against our deferred tax assets at June 30, 2013 and 2012, information related to which is as follows: 

Balance, July 1, 2012	$	(2,589,000	)
Increase in tax asset valuation allowance		(850,000	)
Balance, June 30, 2013	$	(3,439,000	)

As of June 30, 2013, we have accrued $347,000 of unrecognized tax benefits related to federal and state income tax matters, which is included in accrued liabilities on the accompanying consolidated balance sheets. The amount that would reduce the Company’s income tax expense if recognized and result in a corresponding decrease in the Company’s effective tax rate is $47,000.

Information with respect to our accrual for unrecognized tax benefits is as follows: 

Balance, July 1, 2012	$	313,000
Additions related to current year tax positions		34,000
Additions related to prior year tax positions		—
Balance, June 30, 2013	$	347,000

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense when applicable. As of June 30, 2013, no interest or penalties applicable to our unrecognized tax benefits have been accrued since we have sufficient tax attributes available to fully offset any potential assessment of additional tax.

We are subject to U.S. federal income tax, as well as income tax of multiple state tax jurisdictions. We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended June 30, 2010 and later. Our state income tax returns are open to audit under the statute of limitations for the years ended June 30, 2009 and later. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.