Annual report [Section 13 and 15(d), not S-K Item 405]

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Jun. 30, 2025
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 $27,508,000 and $26,483,000 has been established to offset the net deferred tax assets as of June 30, 2025 and 2024, 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 from 2010 and forward are subject to examination by the federal and state taxing authorities due to the carry forward of unutilized net operating losses and research and development credits, as applicable.

 

The Company has primarily incurred losses since inception. A current state income tax provision of $4,000 has been recorded for state minimum and net worth taxes. Significant components of the Company’s net deferred tax assets and liabilities are shown in the table below.

 

SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 

    2025     2024  
    Year ended June 30,
    2025     2024  
Deferred tax assets:                
Net operating loss carryforwards   $ 22,222,000     $ 21,553,000  
Research and development credit carryforward     27,000       27,000  
Capitalized research and development expenses     2,323,000       1,987,000  
Stock compensation     20,000       638,000  
Disallowed interest expense     740,000       431,000  
Lease liability     322,000       567,000  
Other, net     2,138,000       1,785,000  
Gross deferred tax assets     27,792,000       26,988,000  
Less valuation allowance     (27,508,000 )     (26,483,000 )
Total deferred tax assets     284,000       505,000  
                 
Deferred tax liabilities:                
Right of use asset     (284,000 )     (505,000 )
Total deferred tax liabilities     (284,000 )     (505,000 )
Total net deferred tax liabilities   $ –     $ –  

 

At June 30, 2025, the Company had unused net operating loss (“NOL”) carryovers of approximately $77,171,000 and $87,399,000 that are available to offset future federal and state taxable income, respectively. Federal NOL carryforwards arising after 2017 of approximately $54,763,000 do not expire. Federal NOL carryforwards arising before 2018 of approximately $22,408,000 and all of the state NOL carryforwards 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, 2025 and 2024, due to the following:

SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION 

    2025     2024  
    Year ended June 30,
    2025     2024  
Federal income taxes at 21%   $ (1,401,000 )   $ (1,749,000 )
State income taxes, net     (223,000 )     (546,000 )
Permanent differences and other     178,000       241,000  
Other true ups     425,000       270,000  
Change in valuation allowance     1,025,000       1,787,000  
Provision for income taxes   $ 4,000     $ 3,000  

 

Internal Revenue Code Section 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 study. If such analysis determines there is a limitation on the use of 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 would be no impact on the Company’s consolidated financial statements as of June 30, 2025 and 2024.

 

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, 2025 and 2024.