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Income taxes
 9 Months Ended
Mar. 31, 2025
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 nine months ended March 31, 2025 and 2024 and the year ended June 30, 2024, no GILTI tax was recorded as of March 31, 2025 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 and nine months ended March 31, 2025, 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 and nine months ended March 31, 2025 and 2024 consisted of the following:

                
   Three Months Ended March 31,   Nine Months Ended March 31, 
   2025   2024   2025   2024 
Current:                    
Federal  $(12,116)  $–   $1,926   $– 
States   (1,501)   11,024    24,368    22,590 
Foreign   –    –    –    – 
Total current income tax provision   (13,617)   11,024    26,294    22,590 
                     
Deferred:                    
Federal   53,460    271,732    (391,524)   (568,897)
States   (13,826)   94,210    (124,754)   (106,357)
Foreign   –    181    –    64,990 
Total deferred taxes   39,634    366,123    (516,278)   (610,264)
                     
Total provision for income tax expense (benefit)  $26,017   $377,147   $(489,984)  $(587,674)

 

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.

 

For the three and nine months ended March 31, 2025, the Company recorded income tax expense (benefit) of $26,017 and $(489,984), respectively, reflecting an effective tax rate of (8.22)% and 18.50%, respectively. For the three and nine months ended March 31, 2024, The Company recorded income tax expense (benefit) of $377,147 and $(587,674), respectively, with effective tax rates of 27.14% and 21.12%, respectively.

 

The Company's effective tax rates for the three and nine months ended March 31, 2025 and 2024 differ from the federal statutory rate of 21%, primarily due to U.S. state income tax deduction, other permanent differences and the impact of foreign jurisdictions subject to a full valuation allowance. For the three months ended March 31, 2025, the company’s effective tax rate was (8.22)%, which was resulting from reversal of non-vesting stock based compensation expense discussed in Note 14 below.

 

As of March 31, 2025, income taxes payable to US tax authorities and income tax payable to Chinese tax authorities was $401 and $278,368, 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:

        
   March 31, 2025   June 30, 2024 
Deferred tax assets          
263A calculation  $307,913   $291,354 
Inventory reserve   249,377    171,942 
State taxes   4,844    4,840 
Accrued expenses   41,475    155,860 
ROU assets / liabilities   100,683    110,391 
Net operating losses   2,163,655    2,190,589 
Disallowed interest expense   294,297    258,352 
Stock-based compensation   304,756    341,591 
Valuation allowance   (112,145)   (64,897)
Allowance for credit losses   512,556    40,067 
Total deferred tax assets   3,867,411    3,500,089 
           
Deferred tax liabilities          
Depreciation   (58,045)   (77,287)
Intangible assets acquired   (847,480)   (977,197)
Total deferred tax liabilities   (905,525)   (1,054,484)
           
Net deferred tax assets  $2,961,886   $2,445,605 

 

For the nine months ended March 31, 2025 and 2024, the Company recorded $47,248 and $64,990 of valuation allowance to reduce deferred tax assets for the losses incurred by DHS.