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

INCOME TAXES

v3.26.1
INCOME TAXES
 12 Months Ended
Jun. 30, 2026
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 12 – 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. Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets, a valuation allowance of approximately $27,656,000 and $27,508,000 has been established to offset the net deferred tax assets as of June 30, 2026 and 2025, respectively,

 

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

 

The Company has incurred losses since inception. A state income tax provision of $1,000 has been recorded for the year ended June 30, 2026 for state minimum and net worth taxes. The provision for the previous year was $4,000, as follows:

 

    2026     2025  
    Fiscal year ended June 30,  
    2026     2025  
Current provision:                
Federal   $ -     $ -  
State     1,000       4,000  
Total current     1,000       4,000  
Deferred income tax provision:                
Federal                
State     -       -  
Total deferred     -       -  
Total income tax provision   $ 1,000     $ 4,000  

 

The provision for income taxes on earnings subject to income taxes differs from the statutory federal rate at June 30, 2026, due to the following:

 

    Amount    

% of net loss

before income taxes

  
    Fiscal year ended June 30, 2026  
    Amount    

% of net loss

before income taxes

  
Net loss before income taxes     7,448,000          
                 
U.S. federal statutory tax rate   $ (1,564,000 )     21.00 %
State income taxes, net of federal benefit(1)     1,000       (0.01 )%
Non-taxable or non-deductible items                
Stock-based compensation     105,000       (1.41 )%
Other adjustments     17,000       (0.23 )%
Changes in valuation allowance     317,000       (4.26 )%
Other     -        -   
Prior period adjustments     1,125,000       (15.11 )%
Provision for income taxes   $ 1,000       (0.01 )%

 

 

(1) State taxes in California make up the majority of the tax effect in this category.

 

 

As previously disclosed for the year ended June 30, 2025, prior to the adoption of ASU 2023-09, the provision for income taxes on earnings subject to income taxes differs from the statutory federal rate, due to the following:

 

    Fiscal year ended
June 30, 2025		  
Federal income taxes at 21%   $ (1,401,000 )
State income taxes, net     (223,000 )
Permanent differences and other     178,000  
Other true ups     425,000  
Change in valuation allowance     1,025,000  
Provision for income taxes   $ 4,000  

 

Significant components of the Company’s net deferred tax assets are shown in the table below.

 

    2026     2025  
    Fiscal year ended June 30,  
    2026     2025  
Deferred tax assets:                
Net operating loss carryforwards   $ 23,674,000     $ 22,222,000  
Research and development credit carryforward     27,000       27,000  
Capitalized research and development expenses     1,405,000       2,323,000  
Stock compensation     68,000       20,000  
Disallowed interest expense     879,000       740,000  
Lease liability     516,000       322,000  
Other, net     1,610,000       2,138,000  
Gross deferred tax assets     28,179,000       27,792,000  
Less: valuation allowance     (27,656,000 )     (27,508,000 )
Total deferred tax assets     523,000       284,000  
                 
Deferred tax liabilities:                
Capital lease asset     (22,000 )     -  
Right of use asset     (501,000 )     (284,000 )
Total deferred tax liabilities     (523,000 )     (284,000 )
Total net deferred tax liabilities   $ -     $ -  

 

At June 30, 2026, the Company had unused net operating loss (“NOL”) carryovers of approximately $84,529,000 and $86,022,000 available to offset future federal and state taxable income, respectively. Federal NOL carryforwards arising after 2017 of approximately $62,122,000 do not expire. Federal NOL carryforwards arising before 2018 of approximately $22,408,000 and the California NOL carryforwards of $83,234,000 begin to expire in 2030. The Georgia NOL carryforwards of $2,789,000 do not expire.

 

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, 2026 and 2025.

 

 

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, 2026 and 2025.

 

The One Big Beautiful Bill Act of 2025 (the “2025 Tax Act”) was signed into law on July 4, 2025. The 2025 Tax Act, among other things, allows for immediate expensing for domestic research and development expenditures. These provisions did not have a material effect on the Company’s financial statements for the year ended June 30, 2026.