Entity information:
NOTE
10
- INCOME TAXES
 
Pursuant to the provisions of FASB ASC Topic
No.
740
Income Taxes
(“ASC
740”
)
,
deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carryforwards.
No
net provision for refundable Federal income taxes has been made in the accompanying statement of operations because
no
recoverable taxes were paid previously. Significant components of the Company’s net deferred tax assets at
June 
30,
2017
and
2016
are shown below. A valuation allowance of approximately
$9,927,000
and
$8,107,000
has been established to offset the net deferred tax assets as of
June 
30,
2017
and
2016,
respectively, due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets.
 
The Company is subject to taxation in the United States and California. The Company
’s tax years for
2010
and forward are subject to examination by the United States and California tax authorities due to the carry forward of unutilized net operating losses and research and development credits (if any).
 
We have incurred losses since inception, so
no
current income tax provision or benefit has been recorded. Significant components of our net deferred tax assets are shown in the table below.
 
   
Year Ended June 30,
  
   
201
7
    
201
6
  
Deferred Tax Assets:
                
Net operating loss carryforwards
   $
8,126,000
     $
6,473,000
  
Stock compensation
    
1,646,000
      
1,503,000
  
Other, net
    
155,000
      
131,000
  
Net deferred tax assets
    
9,927,000
      
8,107,000
  
Valuation allowance for deferred tax assets
    
(9,927,000
)
    
(8,107,000
)
Net deferred tax assets
   $
-
     $
-
  
 
 
The Company recognizes windfall tax benefits associated with the exercise of stock options directly to stockholders' equity only when realized. Accordingly, deferred tax assets are
not
recognized for net operating loss carryforwards from windfall tax benefits occurring from
January 1, 2006
onward. At
June 30,
2017,
deferred tax assets do
not
include excess tax benefits from stock-based compensation. 
 
At
June 30, 2017
, the Company had unused net operating loss carryovers of approximately
$20,242,000
and
$20,200,000
that are available to offset future federal and state taxable income, respectively. These operating losses begin to expire in
2030.
 
The provision for income taxes on earnings subject to income taxes differs from the statutory federal rat
e at
June 30, 2017
and
2016,
due to the following:
 
   
Year Ended June 30,
  
   
2017
    
2016
  
Federal income taxes at 34%
   $
(1,508,000
)
   $
(1,554,000
)
State income taxes, net
    
(392,000
)
    
(404,000
)
Permanent differences and other
    
83,000
      
121,000
  
Change in the estimated fair market value of derivatives
    
6,000
      
(11,000
)
Other true ups, if any
    
(9,000
)
    
-
  
Change in valuation allowance
    
1,820,000
      
1,848,000
  
Provision for income taxes
   $
-
     $
-
  
 
Internal Revenue Code Sections
382
limits the use of our net operating loss carryforwards if there has been a cumulative change in ownership of more than
50%
within a
three
-year period.
  The Company has
not
yet completed a Section
382
net operating loss analysis. In the event that such analysis determines there is a limitation on the use on net operating loss carryforwards to offset future taxable income, the recorded deferred tax asset relating to such net operating loss carryforwards will be reduced. However, as the Company has recorded a full valuation allowance against its net deferred tax assets, there is
no
impact on the Company’s consolidated financial statements as of
June 30, 2017
and
2016.
 
We follow FASB ASC Topic
No.
740,
Income Taxes
(“ASC
740”
), which clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements, and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC
740,
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. An uncertain income tax position will
not
be recognized if it has less than a
50%
likelihood of being sustained. Additionally, ASC
740
provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
 
In accordance with ASC
740,
there are
no
unrecognized
tax benefits as of
June 30, 2017
or
June 30, 2016.