NOTE 5 – INCOME TAXES

The components of income tax expense are as follows (in thousands):

	Year ended June 30,
	2015		2014		2013

Current
Federal	$	29	$	13	$	-
State		83		20		15
	$	112	$	33	$	15

The reconciliation of the statutory income tax rate to the Company’s effective income tax rate for the fiscal years ended June 30, 2015, 2014 and 2013 is as follows:

	Year Ended June 30,
	2015			2014			2013

Statutory rate		34.0	%		34.0	%		34.0	%
State income taxes, net		5.3	%		(6.9	%)		(0.4	%)
Meals and entertainment		1.2	%		1.2	%		(0.5	%)
Prior year adjustments and other		0.0	%		(4.0	%)		0.5	%
Effective rate before valuation allowance		40.5	%		24.3	%		33.6	%

Change in valuation allowance		(31.7	%)		(21.0	%)		(34.2	%)
Effective tax rate		8.8	%		3.3	%		(0.6	%)

During the year ended June 30, 2013, the Company recorded $0.9 million to establish a deferred tax valuation allowance to fully reserve net deferred tax assets. The Company recorded a $0.4 million and $0.2 million release of the deferred tax valuation allowance due to taxable income generated during the years ended June 30, 2015 and 2014, respectively. The establishment of valuation allowances and development of projected annual effective tax rates requires significant judgment and is impacted by various estimates. Both positive and negative evidence including losses over seven of the past twelve quarters, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets.

Under generally accepted accounting principles, the valuation allowance has been recorded to reduce the Company’s net deferred tax assets to an amount that is more likely than not to be realized and is based upon the uncertainty of the realization of certain federal and state deferred tax assets related to net operating loss carryforwards and other tax attributes.

At June 30, 2015 and 2014, the significant components of deferred tax assets and liabilities are approximated as follows (in thousands):

	June 30,
	2015			2014
Deferred tax assets relating to:
Stock compensation	$	892		$	834
AMT and research and development credits		455			410
Deferred rent		44			23
Inventory		92			58
Professional fees		163			51
Accrued vacation		23			23
Accounts receivable allowance		13			8
Contribution carryovers		31			14
Net operating loss carryforwards		1,124			1,751
Total deferred tax assets		2,837			3,172
Deferred tax liablities related to depreciation differences		(555	)		(487	)
Net deferred tax assets before valuation allowance		2,282			2,685
Valuation allowance		(2,282	)		(2,685	)
Net deferred tax assets	$	-		$	-

During the years ended June 30, 2015 and 2014, the Company utilized net operating loss carryforwards for income tax purposes of approximately $1.8 million and $1.0 million, respectively, which had previously been fully offset by a deferred tax valuation allowance in the prior year.

At June 30, 2015, the Company had net operating loss carryforwards of $3.3 million which will expire, if unused, between June 30, 2031 and June 30, 2033. At June 30, 2015, the Company had various tax credit carryforwards of $0.4 million, of which $0.2 million will expire by June 30, 2030 and $0.2 million which may be carried forward indefinitely.