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INCOME TAXES
 12 Months Ended
Jun. 30, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 10 - INCOME TAXES

 

Pursuant to the provisions of FASB ASC Topic No. 740 Income Taxes (“ASC 740”), deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss and tax credit carryforwards. A valuation allowance of approximately $23,923,000 and $22,951,000 has been established to offset the net deferred tax assets as of June 30, 2023 and 2022, respectively, due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets.

 

The Company is subject to taxation in the United States, California and Georgia. The Company’s tax years for 2010 and forward are subject to examination by the United States and state taxing authorities due to the carry forward of unutilized net operating losses and research and development credits (if any).

 

 

The Company has incurred losses since inception. A current state income tax provision of $2,000 has been recorded for state minimum and net worth taxes. Significant components of the Company’s net deferred tax assets are shown in the table below.

 

           
   Year Ended June 30, 
   2023   2022 
Deferred Tax Assets:          
Net operating loss carryforwards  $20,673,000   $20,654,000 
Research & development credit carryforward   27,000    27,000 
Capitalized research and development expenses   1,405,000    - 
Stock compensation   971,000    1,636,000 
Lease liability   736,000    802,000 
Other, net   776,000    559,000 
Gross deferred tax assets   24,588,000    23,678,000 
Less Valuation allowance   (23,923,000)   (22,951,000)
Total deferred tax assets   665,000    727,000 
           
Deferred Tax Liabilities:          
Right of use asset   (665,000)   (727,000)
Total deferred tax liabilities   (665,000)   (727,000)
Net deferred tax liabilities  $-   $- 

 

At June 30, 2023, the Company had unused net operating loss (“NOL”) carryovers of approximately $72,677,000 and $77,993,000 that are available to offset future federal and state taxable income, respectively. Federal NOL carryforwards arising after 2017 of approximately $50,269,000 do not expire. Federal NOL carryforwards arising before 2018 of approximately $22,408,000 and all of the state NOL carryforward begin to expire in 2030.

 

The provision for income taxes on earnings subject to income taxes differs from the statutory federal rate at June 30, 2023 and 2022, due to the following:

 

           
   Year Ended June 30, 
   2023   2022 
Federal income taxes at 21%  $(1,415,000)  $(3,278,000)
State income taxes, net   (422,000)   (1,090,000)
Permanent differences and other   152,000    102,000 
Other true ups, if any   715,000    154,000 
Change in valuation allowance   972,000    4,112,000 
Provision for income taxes  $2,000   $- 

 

Internal Revenue Code Sections 382 limits the use of our net operating loss carryforwards if there has been a cumulative change in ownership of more than 50% within a three-year period. The Company has not yet completed a Section 382 net operating loss analysis. If such analysis determines there is a limitation on the use on net operating loss carryforwards to offset future taxable income, the recorded deferred tax asset relating to such net operating loss carryforwards will be reduced. However, as the Company has recorded a full valuation allowance against its net deferred tax assets, there is no impact on the Company’s consolidated financial statements as of June 30, 2023 and 2022.

 

Under ASC 740, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

 

 

In accordance with ASC 740, there are no unrecognized tax benefits as of June 30, 2023 or June 30, 2022.

 

The Tax Cuts and Jobs Act resulted in significant changes to the treatment of research or experimental (“R&E”) expenditures under Section 174. For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all R&E expenditures that are paid or incurred in connection with their trade or business which represent costs in the experimental or laboratory sense. Specifically, costs for U.S. based R&E activities must be amortized over five years and costs for foreign R&E activities must be amortized over 15 years; both using a half year convention. The Company has incorporated the impact of this new tax legislation into its financial statements as of June 30, 2023 and established a $1.4 million deferred tax asset for the remaining amortizable tax basis in its R&E costs in the table of net deferred tax assets above. The impact on the Company’s financial statements was immaterial given the full valuation allowance against the Company’s U.S. net deferred tax assets.