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Income taxes
 3 Months Ended
Sep. 30, 2024
Income Tax Disclosure [Abstract]  
Income taxes

Note 12 – Income taxes

 

In addition to corporate income taxes in the United States, upon completion of the acquisition of Anivia in February 2022, the Company is subject to corporate income taxes in People’s Republic of China (“PRC”). Anivia and its subsidiaries are subject to BVI or Hong Kong income taxes but did not have any operations for the year ended June 30, 2022 in those jurisdictions. DHS, the operating VIE of Anivia, is considered a Controlled Foreign Corporation (CFC) defined under IRC Sec. 957(a) since the Company indirectly owns more than 50% voting control of DHS as a result of the Transfer Agreement. Therefore, DHS is subject to the Global Intangible Low-Taxed Income (or GILTI) Tax. DHS is subject to 5% tax rate in PRC until December 31, 2027. Since DHS had losses during the three months ended September 30, 2024 and 2023 and the year ended June 30, 2024, no GILTI tax was recorded as of September 30, 2024 and June 30, 2024. The Company is not eligible for the GILTI high-tax exclusion. In addition, as a result of the acquisition, the Company recognized goodwill in the amount of $6,094,144. Since the acquisition was a stock acquisition, the Goodwill is not deductible for tax purposes.

 

For the three months ended September 30, 2024, as a result of the Company’s inability to establish a reliable estimate for annual effective tax rate, the Company calculated income tax expense using the actual effective tax rate year to date, as opposed to the estimated annual effective tax rate, as provided in Accounting Standards Codification (ASC) 740-270-30-18.

 

The income tax provision for the three months ended September 30, 2024 and 2023 consisted of the following:

        
   September 30, 2024   September 30, 2023 
Current:          
Federal  $–   $(1,705)
State   8,409    12,470 
Foreign   –    – 
Total current income tax provision   8,409    10,765 
Deferred:          
Federal   (521,137)   (284,648)
State   (123,784)   (66,624)
Foreign   –    64,625 
Total deferred taxes   (644,921)   (286,647)
           
Total provision for income taxes  $(636,512)  $(275,882)

 

The Company is subject to U.S. federal income tax as well as state income tax in certain jurisdictions. The tax years 2019 to 2023 remain open to examination by the major taxing jurisdictions to which the Company is subject. The following is a reconciliation of income tax expenses at the effective rate to income tax at the calculated statutory rates:

        
   September 30, 2024   September 30, 2023 
Statutory tax rate          
Federal   21.00%    21.00% 
State (net of federal benefit)   5.51%    5.82% 
Foreign tax rate difference   (3.16%)   (4.88%)
Net effect of state income tax deduction and other permanent differences   0.5%    (4.31%)
Effective tax rate   23.85%    17.63% 

 

As of September 30, 2024, prepaid income taxes to US tax authorities and income tax payable to Chinese tax authorities was $16,687 and $285,964, respectively. As of June 30, 2024, prepaid income taxes to US tax authorities and income tax payable to Chinese tax authorities was $31,496 and $276,158, respectively.

 

The tax effects of temporary differences which give rise to significant portions of the deferred taxes are summarized as follows:

        
   September 30, 2024   June 30, 2024 
Deferred tax assets          
263A calculation  $239,234   $291,354 
Inventory reserve   248,254    171,942 
State taxes   1,766    4,840 
Accrued expenses   131,467    155,860 
ROU assets / liabilities   107,632    110,391 
Net operating loss   2,304,794    2,190,589 
Disallowed interest expense   269,322    258,352 
Stock-based compensation   395,850    341,591 
Valuation allowance   (85,054)   (64,897)
Allowance for credit loss   485,472    40,067 
Total deferred tax assets   4,098,737    3,500,089 
           
Deferred tax liabilities          
Depreciation   (74,059)   (77,287)
Intangible assets acquired   (934,153)   (977,197)
Total deferred tax liabilities   (1,008,212)   (1,054,484)
           
Net deferred tax assets  $3,090,525   $2,445,605 

 

For the three months ended September 30, 2024 and 2023, the Company recorded $20,157 and $64,145 of valuation allowance to reduce deferred tax assets for the losses incurred by DHS.