XML 23 R12.htm IDEA: XBRL DOCUMENT

6. INCOME TAXES

12 Months Ended

Jun. 30, 2017

Income Tax Disclosure [Abstract]

Income tax provision for the years ended June 30, 2017 and 2016 consists of the following:

		Year Ended June 30,
		2017				2016
Current income tax expense (benefit):
Federal		$	16,760			$	19,343
State			800				(32,715	)
			17,560				(13,372	)
Deferred income tax expense (benefit):
Federal			440,647				350,958
State			–				–
Foreign			(83,620	)			(302,653	)
			357,027				48,305
Provision for income taxes		$	374,587			$	34,933

The provision for income taxes reconciles to the amount computed by applying the effective federal statutory income tax rate to the income before provision for income taxes as follows:

		Year Ended June 30,
		2017				2016
Federal tax provision, at statutory rate of 34%		$	389,495			$	751,773
State tax, net of federal tax benefit			(50,107	)			(142,139	)
Nondeductible expenses			5,762				(16,619	)
R&D credits			(39,394	)			(43,664	)
Foreign rate difference			17,063				(33,828	)
Other			1,133				(72,803	)
Change in valuation allowance			50,635				(407,787	)
Provision for income taxes		$	374,587			$	34,933

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows:

		June 30, 2017				June 30, 2016
Deferred tax asset:
Net operating losses		$	1,221,466			$	1,716,980
State tax			272				272
Intangibles			71,716				19,993
Tax credits			541,390				425,011
Other, net			107,903				111,732
Total deferred tax assets			1,942,747				2,273,988
Deferred tax liabilities:
Fixed asset			(30,089	)			(16,600	)
Intangibles			–				(38,535	)
Total deferred tax liabilities			(30,089	)			(55,135	)
Less valuation allowance			(250,752	)			(200,117	)
Net deferred tax asset		$	1,661,906			$	2,018,736

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We have evaluated the available evidence supporting the realization of our gross deferred tax assets, including the amount and timing of forecasted future taxable income. Management determined it is more likely than not that the federal deferred tax assets will be fully realized and no valuation allowance is necessary as of June 30, 2017. Management also determined that certain state deferred tax assets required a partial valuation allowance as of June 30, 2017. As of June 30, 2017, we have federal net operating loss carryforwards of approximately $2.6 million, which expire through 2034 and no state net operating loss carryforwards. The utilization of net operating loss carryforwards may be subject to limitations under provisions of the Internal Revenue Code Section 382 and similar state provisions.

We adopted the provisions of ASC 740 related to accounting for uncertain tax positions effective July 1, 2007, which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Under this provision, 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. Tax benefits of an uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained based on technical merits.

A reconciliation of the beginning and ending balance of unrecognized tax benefits, which have been considered in the Company's computation of its deferred tax assets, is as follows:

Balance as of June 30, 2015		$	130,464
Gross increase			38,059
Balance as of June 30, 2016			168,523
Gross increase			52,622
Balance as of June 30, 2017		$	221,145

We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months. ASC 740 requires us to accrue interest and penalties where there is an underpayment of taxes based on our best estimate of the amount ultimately to be paid. Our policy is to recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense. We have not recorded any interest or penalties as the liability associated with the unrecognized tax benefits is immaterial. We are subject to taxation in the U.S., and various state and foreign jurisdictions.

The Internal Revenue Service and California Franchise Tax Board have completed their examinations of our 2007 and 2008 taxable years with a favorable final resolution of the Company’s claim for research and development tax credits. As of June 30, 2016, the R&D tax credits that we have claimed have been received in full. In addition, the Franchise Tax Board completed its examination of our taxable years from 2008 to 2011 with a favorable resolution of the Company’s claim for tax refunds in regard to the California apportionment of our income. As of June 30, 2016, the tax refunds that we have claimed have been received in full from the Franchise Tax Board.