NOTE 4—INCOME TAXES

The components of the provision (benefit) for income taxes are as follows:


	2015		2014
Current tax expense (benefit)
Federal	$	(1,000)	$	24,000
State		17,000		18,000
		16,000		42,000
Deferred tax expense (benefit)
Federal		82,000		(222,000)
State		67,000		77,000
		149,000		(145,000)
Total income tax benefit	$	165,000	$	(103,000)

The provision for income taxes reflected in the consolidated statements of operations differs from the amounts computed at the federal statutory tax rates.

The principal differences between our statutory income tax expense and the effective provision for income taxes are summarized as follows:


	2015		2014
Computed tax expense at statutory rates	$	98,000	$	261,000
Permanent differences		9,000		7,000
State tax and credits		24,000		86,000
Provision to Return Adjustment		9,000		336,000
State Rate Adjustment		11,000		—
Increase (decrease) in valuation allowance		14,000		(793,000)
	$	165,000	$	(103,000)

During the year ended April 30, 2015, the Company recorded a reduction to its deferred tax assets based on the actual filing of its income tax returns related to the year ended April 30, 2014. This amount is reflected above as the provision to return adjustment. The state rate was increased for the tax year ended April 30, 2015 to account for throwback sales in the apportionment factor. Amended state income tax returns for the tax years ended April 30, 2013 and April 30, 2014 will be prepared and the additional tax will be offset by available state tax credits. Periods prior to April 30, 2013 were not impacted. An increase in the valuation allowance was a result of the impact of the state rate on the deferred tax asset.

We have available as benefits to reduce future income taxes, subject to applicable limitations, estimated federal net operating loss carryforward amounts as described below. In addition, we have available to us federal and state tax credits that carry forward indefinitely.


	NOL
Year of Expiration	Carryforwards
2019	$	982,000
2022		32,000
2023		1,000
2024		77,000
2026		253,000
2027		217,000
2030		28,000
2032		298,000
	$	1,888,000

The following table summarizes the components of the net deferred income tax asset:


	2015		2014
Net operating loss carryforwards	$	467,000	$	646,000
Inventory valuation reserve		138,000		146,000
Loss on equity and impairment in investee		435,000		421,000
Tax credit carryforward		—		105,000
Other		231,000		88,000
		1,271,000		1,406,000
Less: valuation allowance		(435,000)		(421,000)
	$	836,000	$	985,000

We record deferred income tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. As of April 30, 2015, we anticipate the realization of a portion of our deferred income tax assets. We have adjusted the valuation allowance accordingly in the years ended April 30, 2015 and 2014, which has reduced the provision for income taxes. The remaining valuation allowance is specifically related to impairment on an investment that would result in a capital loss for tax purposes that we do not anticipate realizing due to the absence of offsetting capital gain income.

We evaluate the appropriateness of our deferred income tax asset valuation allowance on a quarterly basis and continue to consider positive and negative trends in our industry that could affect our determination. We believe that our current adjustment to the valuation allowance is appropriate due to anticipated stronger demand over the next few fiscal years related to a number of anticipated contract awards for new business in the aerospace and defense markets. We believe that this increase in demand should generate sufficient taxable earnings to enable us to realize our net deferred tax assets, except as discussed above. In addition to this, we have achieved consistent taxable earnings in recent fiscal years, we have established a recent history of utilizing our net deferred tax asset, our available carryforward periods of our net operating losses are of sufficient length and are at minimum risk of expiring unused, and our products are included in applications that generally have a longer lifecycle.

The net deferred tax assets are presented in the accompanying April 30, 2015 and 2014 balance sheets as follows:


	2015		2014
Current deferred income tax asset	$	171,000	$	177,000
Noncurrent deferred income tax asset		665,000		808,000
	$	836,000	$	985,000

As of April 30, 2015, the federal tax returns for the fiscal years ended 2010 through 2014 are open to audit until the statute of limitations closes for the years in which the net operating losses are utilized. We recognize interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense. As of April 30, 2015, we recorded no accrued interest or penalties related to uncertain tax positions. We expect no significant change in the amount of unrecognized tax benefit, accrued interest or penalties within the next twelve months.