Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Apr. 30, 2016

Note 8. Income Taxes

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

	2016			2015
Current:
Federal	$	—		$	—
State		(187,000	)		3,000
		(187,000	)		3,000
Deferred:
Federal		—			—
State		—			—
		—			—
Total income tax expense	$	(187,000	)	$	3,000

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. For the fiscal year ended April 30, 2015 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:

	2016			2015
Federal income tax at statutory rates	$	(479,000	)	$	(1,301,000	)
State income taxes (net of federal income tax benefit)		81,000			(28,000	)
Impact of change in state rate		(69,000	)
Other		(46,000	)		257,000

Total income tax expense (benefit) before provision for valuation allowance		(513,000	)		(1,072,000	)
Changes in valuation allowance		326,000			1,075,000
Total income tax expense	$	(187,000	)	$	3,000

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

	2016			2015
Deferred tax assets:
Compensated absences and severance, principally due to accruals for financial reporting purposes	$	3,000		$	3,000
Stock-based compensation expense		1,438,000			1,151,000
Accounts receivable, principally due to allowance for doubtful accounts and sales returns		36,000			49,000
Property and equipment, principally due to differences in depreciation		208,000			216,000
Intangible assets		3,000			53,000
Inventories		104,000			54,000
Net operating losses		10,691,000			10,609,000
Alternative minimum tax		438,000			438,000
Capitalized R & D cost		116,000			128,000
Other		13,000			23,000
Net deferred tax assets		13,050,000			12,724,000

Valuation allowance		(13,050,000	)		(12,724,000	)

Net deferred tax assets	$	—		$	—

The valuation allowance increased by $326,000 and $1,075,000 for the fiscal years ended April 30, 2016 and 2015, 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 $30,400,000 and $7,900,000, respectively. These can be used to offset future taxable income and expire between 2023 and 2036 for Federal tax purposes and 2016 and 2036 for state tax purposes.