Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Apr. 30, 2015

(5) Income Taxes

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

	2015		2014
Current:
Federal	$	—	$	—
State		3,000		3,000
		3,000		3,000
Deferred:
Federal		—		—
State		—		—
		—		—
Total income tax expense	$	3,000	$	3,000

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:

	2015			2014

Federal income tax at statutory rates	$	(1,301,000	)	$	(887,000	)
State income taxes (net of federal income tax benefit)		(28,000	)		(63,000	)
Impact of change in state rate		—			1,144,000
Other		257,000			(108,000)

Total income tax expense (benefit) before provision for valuation allowance		(1,072,000	)		86,000
Changes in valuation allowance		1,075,000			(83,000	)
Total income tax expense	$	3,000		$	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:

	2015			2014
Deferred tax assets:
Compensated absences and severance, principally due to accruals for financial reporting purposes	$	3,000		$	67,000
Stock-based compensation expense		1,151,000			1,146,000
Accounts receivable, principally due to allowance for doubtful accounts and sales returns		49,000			77,000
Property and equipment, principally due to differences in depreciation		216,000			216,000
Intangible assets		53,000			386,000
Inventories		54,000			61,000
Domestic net operating losses		10,609,000			9,120,000
Alternative minimum tax		438,000			438,000
Capitalized R & D cost		128,000			0
Other		23,000			138,000
Net deferred tax assets		12,724,000			11,649,000

Valuation allowance		(12,724,000	)		(11,649,000	)

Net deferred tax assets	$	—		$	—

The Company recorded a valuation allowance of $1,075,000 and $(83,000) for the fiscal years ended April 30, 2015 and 2014, 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 $29,900,000 and $25,600,000, respectively. These can be used to offset future taxable income and expire between 2023 and 2035 for Federal tax purposes and 2016 and 2035 for state tax purposes.

The Company adopted Financial Accounting Standards Board (“FASB”) guidance for accounting for uncertainty in income taxes on May 1, 2008. The implementation of this guidance did not result in a material adjustment to the Company’s liability for unrecognized income tax benefits. At the time of adoption and as of April 30, 2015, the Company currently was not and is not engaged in an income tax examination by any tax authority. The Company recognizes interest and penalties on unpaid taxes in its income tax expense. No interest or penalties were recognized during the Company’s fiscal years ended April 30, 2015, 2014 or 2013. The Company files income tax returns in the United States and in various states. The Company’s significant tax jurisdictions are the U.S. Federal, New Jersey, Pennsylvania and California. The tax years subsequent to 2010 remain open to examination by the taxing authorities.