NOTE 17 - INCOME TAXES
The provision for income taxes consists of the following:
| | | Year Ended June 30, | |
| | | 2017 | | 2016 | |
| Current | | $ | - | | $ | (468) | |
| Deferred | | | - | | | - | |
| Provision for income taxes | | $ | - | | $ | (468) | |
The Company accounts for income taxes using an asset and liability approach which generally requires the recognition of deferred income tax assets and liabilities based on the expected future income tax consequences of events that have previously been recognized in the Company’s financial statements or tax returns. In addition, a valuation allowance is recognized if it is more likely than not that some or all of the deferred income tax assets will not be realized in the foreseeable future. Deferred income tax assets are reviewed for recoverability based on historical taxable income, the expected reversals of existing temporary differences, tax planning strategies and projections of future taxable income. As a result of this analysis, the Company has provided for a valuation allowance against its net deferred income tax assets as of June 30, 2017 and June 30, 2016.
The Company’s combined effective income tax rate differed from the U.S. federal statutory income rate as follows:
| | | Year Ended June 30, | |
| | | 2017 | | 2016 | |
| Income tax expense/(benefit) computed at the U.S. federal statutory rate | | | -34 | % | | -34 | % |
| Change in valuation allowance | | | 34 | % | | 34 | % |
| Total | | | 0 | % | | 0 | % |
Significant components of the Company’s net deferred income tax assets as of June 30, 2017 and June 30, 2016 were as follows:
| | | June 30, 2017 | | June 30, 2016 | |
| Federal net operating loss carryforwards | | $ | 18,557,615 | | $ | 18,018,631 | |
| Federal - other | | | 3,794,302 | | | 2,446,635 | |
| Wisconsin net operating loss carryforwards | | | 3,116,946 | | | 2,929,157 | |
| Australia net operating loss carryforwards | | | 1,334,725 | | | 1,290,134 | |
| Deferred income tax asset valuation allowance | | | (26,803,588) | | | (24,684,557) | |
| Total deferred income tax assets | | $ | - | | $ | - | |
The Company has U.S. federal net operating loss carryforwards of approximately $54.6 million as of June 30, 2017, that expire at various dates between June 30, 2018 and 2037. The Company has U.S. federal research and development tax credit carryforwards of approximately $340,000 as of June 30, 2017 that expire at various dates through June 30, 2036. As of June 30, 2017, the Company has approximately $57.1 million of Wisconsin net operating loss carryforwards that expire at various dates between June 30, 2018 and 2032. As of June 30, 2017, the Company also has approximately $4.4 million of Australian net operating loss carryforwards available to reduce future taxable income of its Australian subsidiaries with an indefinite carryforward period.
The Company’s issuance of additional shares of common stock has constituted an ownership change under Section 382 of the IRC which places an annual dollar limit on the use of net operating loss carryforwards and other tax attributes that may be utilized in the future. The calculation of the annual limitation of usage is based on a percentage of the equity value immediately after any ownership change. The annual amount of tax attributes that may be utilized after the change in ownership is limited. Previous issuances of additional shares of common stock also resulted in ownership changes and the annual amount of tax attributes from previous years is limited as well. The estimated U.S. federal net operating loss carryforward expected to expire due to the Section 382 limitation is $44.5 million and the estimated state net operating losses expected to expire due to the limitation is $28.2 million. The net operating loss deferred tax assets reflect this limitation.