6. INCOME TAXES

12 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 6 - INCOME TAXES

Income tax provision for the years ended June 30, 2018 and 2017 consists of the following:

	Year Ended June 30,
	2018			2017
Current income tax expense (benefit):
Federal	$	3,750		$	16,760
State		800			800
		4,550			17,560
Deferred income tax expense (benefit):
Federal		(27,460	)		440,647
State		–			–
Foreign		(164,063	)		(83,620	)
		(191,523	)		357,027
Provision (benefit) for income taxes	$	(186,973	)	$	374,587

The provision for income taxes reconciles to the amount computed by applying the effective federal statutory income tax rate to the income before provision for income taxes as follows:

	Year Ended June 30,
	2018			2017
Federal tax provision (benefit), at statutory rate of 34%	$	(799,696	)	$	389,495
State tax, net of federal tax benefit		(54,642	)		(50,107	)
Nondeductible expenses		6,753			5,762
R&D credits		(36,733	)		(39,394	)
Foreign rate difference		(54,332	)		17,063
Other		34,878			1,133
Rate reduction		661,629			–
Change in valuation allowance		55,170			50,635
Provision (benefit) for income taxes	$	(186,973	)	$	374,587

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows:

	June 30, 2018			June 30, 2017
Deferred tax asset:
Net operating losses	$	1,417,549		$	1,221,466
State tax		169			272
Intangibles		44,200			71,716
Tax credits		589,206			541,390
Inventory reserve		76,663			–
Other, net		48,687			107,903
Total deferred tax assets		2,176,474			1,942,747
Deferred tax liabilities:
Fixed asset		(17,123	)		(30,089	)
Total deferred tax liabilities		(17,123	)		(30,089	)
Less valuation allowance		(305,922	)		(250,752	)
Net deferred tax asset	$	1,853,429		$	1,661,906

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We have evaluated the available evidence supporting the realization of our gross deferred tax assets, including the amount and timing of forecasted future taxable income. Management determined it is more likely than not that the federal deferred tax assets will be fully realized, and no valuation allowance is necessary as of June 30, 2018. Management also determined that certain state deferred tax assets required a partial valuation allowance as of June 30, 2018. As of June 30, 2018, we have federal net operating loss carryforwards of approximately $4.3 million, which expire through 2038 and no state net operating loss carryforwards. The utilization of net operating loss carryforwards may be subject to limitations under provisions of the Internal Revenue Code Section 382 and similar state provisions.

We apply the provisions of ASC 740 related to accounting for uncertain tax positions, which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Under this provision, 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. Tax benefits of an uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained based on technical merits.

A reconciliation of the beginning and ending balance of unrecognized tax benefits, which have been considered in the Company's computation of its deferred tax assets, is as follows:

Balance as of June 30, 2016	$	168,523
Gross increase		52,622
Balance as of June 30, 2017		221,145
Gross increase		35,894
Relief of ASC 740 reserve/adjustment		(14,852	)
Balance as of June 30, 2018	$	242,187

We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months. ASC 740 requires us to accrue interest and penalties where there is an underpayment of taxes based on our best estimate of the amount ultimately to be paid. Our policy is to recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense. We have not recorded any interest or penalties as the liability associated with the unrecognized tax benefits is immaterial. We are subject to taxation in the U.S., and various state and foreign jurisdictions.

We adopted to classify its net deferred tax assets as noncurrent on the balance sheet under ASU 2015-17.

The Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017. The Act includes a provision to reduce federal corporate income tax rate to a flat 21% effective for a taxable year beginning on or after January 1, 2018. ASC 740 provides that deferred tax assets and liabilities be measured at the enacted tax rate expected to apply when the related temporary differences are to be realized or settled, and the related tax impact is recognized through continuing operation in the period in which tax legislation is enacted. Accordingly, the Company remeasures its deferred tax assets and liabilities as of June 30, 2018 and provides income tax provision of $661,629 through continuing operation section of the income statement.

The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act.  In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.  To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record and provisional estimate in the financial statements. The Company has recognized the provisional tax impacts related to the Tax Act in its financial statements for the year ended June 30, 2018. The ultimate impact may differ from these provisional amounts, possibly materially, due to among other things, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act. The tax fiscal years from 2014 to 2017 remain open to examination by the major taxing authorities to which is the Company is subject.