NOTE 6 - INCOME TAXES
Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. The Company recognizes interest and penalties related to income tax matters as a component of income tax expense.
At June 30, 2017 and 2016, deferred tax assets consist of the following:
| 2017 | 2016 | |||||||
| Net operating loss carryforward | $ | 6,779,967 | $ | 6,544,717 | ||||
| Warrant issuances | - | 192,990 | ||||||
| Deferred officer compensation | 177,088 | 134,022 | ||||||
| Other | 1,281 | 1,632 | ||||||
| Valuation allowance | (6,958,336 | ) | (6,873,361 | ) | ||||
| $ | - | $ | - | |||||
A reconciliation of the activity related to the liability for gross unrecognized tax benefits related to uncertain tax positions during fiscal 2017 and 2016 is as follows:
| Year ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| Balance as of beginning of fiscal year | $ | 192,990 | $ | 0 | ||||
| Increases (decreases) related to current and prior year positions | (192,990 | ) | 192,990 | |||||
| Balance as of June 30, | $ | 0 | $ | 192,990 | ||||
At June 30, 2017, the Company had a net operating loss carryforwards in the amount of approximately $19.9 million available to offset future taxable income through 2036, which will begin to expire in 2022. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods. A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the period ended June 30, 2017 and 2016 is summarized as follows:
| 2017 | 2016 | |||||||
| Tax on income before income tax | 34.00 | % | 34.00 | % | ||||
| Effect of non-temporary differences | (0.04 | )% | (0.05 | )% | ||||
| Effect of prior year items | - | % | -% | |||||
| Effect of temporary differences | - | % | (0.33) | % | ||||
| Change in valuation allowance | (33.96 | )% | (33.62 | )% | ||||
| 0.00 | % | 0.00 | % | |||||
The total amount of unrecognized tax benefits can change due to tax examination activities, lapse of applicable statutes of limitations and the recognition and measurement criteria under the guidance related to accounting for uncertainty in income taxes. The Company does not believe any significant increases or decreases will occur within the next twelve months.
The Company files income tax returns in the United States ("U.S.") federal jurisdiction. Generally, the Company is no longer subject to U.S. federal examinations by tax authorities for fiscal years prior to 2013. The Company does not file in any other jurisdiction and remains open for audit for all tax years as the statute of limitations does not begin until the returns are filed.