Entity information:

Note 8. Income Taxes

 

Income tax expense (income) for the years ended April 30 consists of the following:

 

    2017     2016  
Current:                
Federal   $ —     $ —  
State     —       (187,000 )
      —       (187,000 )
Deferred:                
Federal     —       —  
State     —       —  
      —       —  
Total income tax expense (income)   $ —     $ (187,000 )

 

The Company’s income tax expense for the fiscal year ended April 30, 2016 include a gain recorded on the sale of state net operating losses of approximately $190,000 and tax expense of approximately $3,000 that consists of state minimum tax payments.

 

Income tax expense differs from “expected” tax expense (computed by applying the applicable U.S. statutory Federal income tax rate to earnings before income taxes) as follows:

 

    2017     2016  
             
Federal income tax at statutory rates   $ (651,000 )   $ (479,000 )
State income taxes (net of federal income tax benefit)     (36,000 )     81,000  
Impact of change in state rate     (17,000 )     (69,000 )
State NOL adjustment     121,000       (46,000 )
Other     (12,000 )     —  
Total income tax expense (benefit) before provision for valuation allowance     (595,000 )     (513,000 )
Changes in valuation allowance     595,000       326,000  
Total income tax expense (income)   $ —     $ (187,000 )

 

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:

 

    2017     2016  
Deferred tax assets:                
Compensated absences and severance, principally due to accruals for financial reporting purposes   $ —     $ 3,000  
Stock-based compensation expense     1,617,000       1,438,000  
Accounts receivable, principally due to allowance for doubtful accounts and sales returns     18,000       36,000  
Property and equipment, principally due to differences in depreciation     181,000       208,000  
Intangible assets     (39,000 )     3,000  
Inventories     57,000       104,000  
Net operating losses     11,273,000       10,691,000  
Alternative minimum tax     438,000       438,000  
Capitalized R & D cost     98,000       116,000  
Other     2,000       13,000  
Net deferred tax assets     13,645,000       13,050,000  
                 
Valuation allowance     (13,645,000 )     (13,050,000 )
                 
Net deferred tax assets   $ —     $ —  

 

The valuation allowance increased by $595,000 and $326,000 for the fiscal years ended April 30, 2017 and 2016, respectively. Management believes sufficient uncertainty exists regarding the realization of the deferred tax asset items and that a valuation allowance is required. Management considers projected future taxable income and tax planning strategies in making this assessment. The amount of deferred tax assets considered realizable could materially change in the future if estimates of future taxable income change.

 

The Company has Federal and state net operating loss carry-forwards of approximately $32,400,000 and $4,400,000, respectively. These can be used to offset future taxable income and expire between 2023 and 2037 for Federal tax purposes and 2029 and 2037 for state tax purposes. However, the future use of some or all of such carried forward losses may be limited by Sec. 382 of Internal Revenue Code in the event of an ownership change.