NOTE 6: INCOME TAXES

The Company has not filed its corporate tax returns since fiscal 2007.

Due to recurring losses, the Company’s tax provision for the years ended June 30, 2017 and 2016 was $0.

A summary of our deferred tax is as follows:

As of June 30, 2017, the Company had unused net operating loss carry forwards of approximately $27.8 million available to reduce future federal taxable income. Net operating loss carryforwards expire through fiscal years ending 2037. During the year ended June 30, 2017 the Company utilized net operating loss carryforwards of approximately $866,000 to reduce current taxable income. Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by carryforwards after a change in control (generally a greater than 50% change in ownership).

The Company’s ability to offset future taxable income, if any, with tax net operating loss carryforwards may be limited due to the non-filing of tax returns and the impact of the statute of limitations on the Company’s ability to claim such benefits. Furthermore, changes in ownership may result in limitations under Internal Revenue Code Section 382. Due to these limitations, and other considerations, management has established full valuation allowances on deferred tax assets relating to net operating loss carryforward, as the realization of any future benefits from these assets is uncertain.

The valuation allowance at June 30, 2017 and 2016 was $10,704,000 and $10,364,000, respectively. The change in the valuation allowance during the year ended June 30, 2017 was an increase of approximately $340,000. The change in the valuation allowance during the year ended June 30, 2016 was a decrease of $234,000.

The table below summarizes the differences between our effective tax rate and the statutory federal rate as follows for fiscal 2017 and 2016. The effective tax rate is 35% Federal and 3.6% for State after Federal income tax (benefit):