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Income Taxes
 12 Months Ended
Jun. 30, 2012
Income Taxes [Abstract]  
INCOME TAXES

NOTE 7 – INCOME TAXES

The provision (benefit) for income taxes for the years ended June 30, 2012 and 2011 are as follows:

 

                 
    2012     2011  

Current:

                

Federal

   $ (435,000 )    $ 492,000  

State

     (6,000 )      38,000  
     

Deferred:

                

Federal

     —         —    

State

     —         —    
   

 

 

    

 

 

  

Provision for income taxes

   $ (441,000 )    $ 530,000  
   

 

 

    

 

 

  

 

A reconciliation of the expected tax to the amount computed by applying the federal statutory income tax rates to income (loss) before income taxes for the years ended June 30, 2012 and 2011 is as follows:

 

                 
    2012     2011  

Federal income tax provision (benefit) at the statutory rate

     (34 )%      34 % 

Change in valuation allowance against net deferred tax assets

     26       (19 ) 

State income taxes, net of federal tax benefit

     (9 )      10  

State income tax rate adjustment

     (10 )      —    

Tax incentives

     (7 )      (10 ) 

Non-deductible items

     3       1  
   

 

 

    

 

 

  

Provision for (benefit from) income taxes

     (31 )%      16 % 
   

 

 

    

 

 

  

Deferred income tax assets and liabilities in the accompanying consolidated balance sheets at June 30, 2012 and 2011 are as follows:

 

                 
    2012     2011  

Deferred tax assets/(liabilities) — current:

                

Accrued expenses

   $ 332,000     $ 377,000  

Inventories

     282,000       406,000  

Net operating losses

     —         69,000  

State taxes

     (19,000 )      1,000  

Valuation allowance

     (486,000 )      (690,000 ) 
   

 

 

    

 

 

  
    $ 109,000     $ 163,000  
   

 

 

    

 

 

  
     

Deferred tax assets/(liabilities) — non-current:

                

Income tax credit carry forwards

   $ 1,235,000     $ 743,000  

Net operating losses

     534,000       —    

Intangible assets

     430,000       991,000  

Deferred rent

     163,000       160,000  

State taxes

     37,000       20,000  

Depreciation

     (405,000 )      (406,000 ) 

Valuation allowance

     (2,103,000 )      (1,671,000 ) 
   

 

 

    

 

 

  
    $ (109,000 )    $ (163,000 ) 
   

 

 

    

 

 

  

We have a federal net operating loss carry forward at June 30, 2012 in the amount of $447,000, which expires in 2032. State net operating loss carry forwards at June 30, 2012 and 2011 amount to $4,581,000 and $1,214,000, respectively, and will expire at various dates from 2018 through 2032. Federal and state tax credit carry forwards amount to $745,000 and $490,000, respectively, at June 30, 2012, and $308,000 and $435,000, respectively, at June 30, 2011. These credit carry forwards will expire at various dates from 2013 through 2032.

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 fiscal year 2012, we have maintained a full valuation allowance against our deferred tax assets at June 30, 2012 and 2011, information related to which is as follows:

 

         

Balance, July 1, 2011

   $ (2,362,000 ) 

Increase in tax asset valuation allowance

     (227,000 ) 
   

 

 

  
   

Balance, June 30, 2012

   $ (2,589,000 ) 
   

 

 

  

As of June 30, 2012, we have accrued $313,000 of unrecognized tax benefits related to federal and state income tax matters. 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, 2011

   $ 277,000  

Additions related to current year tax positions

     33,000  

Additions related to prior year tax positions

     3,000  
   

 

 

  
   

Balance, June 30, 2012

   $ 313,000  
   

 

 

  

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense when applicable. As of June 30, 2012, 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, 2009 and later. Our state income tax returns are open to audit under the statute of limitations for the years ended June 30, 2008 and later. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.