7.	Income Taxes

During the three months ended September 30, 2014 and 2013, the Company generated income before income tax expense of $133,322 and $286,390, respectively, and recognized Texas franchise tax expense of $14,050 and $12,600, respectively. The provision for federal income taxes recorded for the three months ended September 30, 2014 and 2013 was $51,267 and zero, respectively. The effective tax rate for the three months ended September 30, 2014 and 2013 was 49.0% and 4.4%, respectively. At September 30, 2014, the differences from the statutory rate of 34.0% include an increase of 9.0% for non-deductible expenses and 6.0% for state tax expense, net of federal benefit. At September 30, 2013, the differences from the statutory rate of 34.0% include a decrease of 22.0% for the reduction in the valuation allowance, 10.5% for non-deductible expenses, offset by an increase of 2.9% for state tax expense, net of federal benefit.

The Company has provided a valuation allowance totaling $3,503,000 and $3,452,000 of net deferred tax assets at September 30, 2014 and June 30, 2014, respectively, as it is deemed more likely than not that these assets will not be realized due to lack of positive evidence to suggest otherwise. Future adjustments to the valuation allowance associated with a change in management's determination of the Company's ability to realize these deferred tax assets will result in an adjustment to income tax expense (benefit) in future periods when those determinations are made. Management will continue to assess the realizability of the deferred tax assets at each interim and annual balance sheet date based on actual and forecasted operating results.

At September 30, 2014, the Company had net operating loss carry forwards of approximately $36 million for federal income tax purposes. These net operating loss carryforwards may be carried forward in varying amounts and expire beginning in fiscal year 2019 continuing through fiscal year 2033 and may be limited in their use due to significant changes in the Company's ownership.

The preparation of various tax returns requires the use of estimates for federal and state income tax purposes. Those estimates may be subject to review by respective taxing authorities. A revision, if any, to an estimate may result in assessment of additional taxes, penalties and interest. Tax years 2009 through 2012 remain subject to examination by various federal and state tax jurisdictions. The Company performed an assessment of its various income tax positions for all periods subject to examination and concluded that no accrual of uncertain tax positions was necessary as of September 30, 2014 and June 30, 2014. The Company will account for interest and penalties related to uncertain tax positions in the current period consolidated statement of operations, as necessary.