NOTE 10 - INCOME TAXES
No provision or benefit for federal or state income taxes has been recorded because the Company has incurred net losses for all periods presented and has recorded a valuation allowance against its deferred tax assets.
The components of the Company’s deferred tax assets are as follows at:
| June 30, 2017 |
June 30, 2016 |
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| Deferred tax assets: | ||||||||
| Federal net operating loss | $ | 15,425,000 | $ | 13,381,000 | ||||
| State net operating loss | 2,538,000 | - | ||||||
| Stock-based compensation | 191,000 | 168,000 | ||||||
| Research and development tax credits | 925,000 | 827,000 | ||||||
| Accruals | 23,000 | 67,000 | ||||||
| Other | 65,000 | 74,000 | ||||||
| Loss: valuation allowance | (19,167,000 | ) | (14,517,000 | ) | ||||
| Total | $ | - | $ | - | ||||
The Company has maintained a full valuation allowance against its deferred tax assets at June 30, 2017 and 2016. A valuation allowance is required to be recorded when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Since the Company cannot be assured of realizing the net deferred tax asset, a full valuation allowance has been provided. The valuation allowance increased for the years ended June 30, 2017 and 2016, by approximately $4,650,000 and $3,745,000, respectively.
At June 30, 2017 and 2016, the Company had federal and state net operating loss carryforwards of approximately $45,366,000 and $39,164,000, respectively, which begin expiring in 2027 and 2037, respectively. The Company also has federal research and development tax credit carryforwards of approximately $925,000 that will begin to expire in 2027. The United States Tax Reform Act of 1986 contains provisions that may limit the Company’s net operating loss carryforwards available to be used in any given year in the event of significant changes in the ownership interests of significant stockholders, as defined. The effect of an ownership change would be the imposition of an annual limitation on the use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate.
A reconciliation of the statutory tax rate to the effective tax rate is as follows:
| Year Ended June 30, 2017 |
Year Ended June 30, 2016 |
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| Statutory federal income tax rate | 34 | % | 34 | % | ||||
| State (net of federal benefit) | 6.0 | % | 6.0 | % | ||||
| Non-deductible expenses | (0.75 | )% | 25 | % | ||||
| Change in valuation allowance | (39.25 | )% | (65 | )% | ||||
| Effective income tax rate | 0 | % | 0 | % | ||||
The Company does not have any uncertain tax positions at June 30, 2017 and 2016 that would affect its effective tax rate. The Company does not anticipate a significant change in the amount of unrecognized tax benefits over the next twelve months. Because the Company is in a loss carryforward position, the Company is generally subject to US federal and state income tax examinations by tax authorities for all years for which a loss carryforward is available. If and when applicable, the Company will recognize interest and penalties as part of income tax expense.