As of February 28, 2017, the Company had net operating loss carry forwards of approximately $806,000 that may be available to reduce future years' federal taxable income for 20 years through 2037. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these net operating loss carry forwards. Net operating losses will begin to expire in 2022.
The following table presents the current income tax provision for federal and state income taxes for the years ended February 28, 2017 and February 29, 2016:
| For the Year Ended February 28, 2017 | For the Year Ended February 29, 2016 | |||||||
| Current tax provisions: | ||||||||
| Federal | $ | – | $ | – | ||||
| State | 800 | 800 | ||||||
| Total provision for income taxes | $ | 800 | $ | 800 | ||||
Reconciliations of the U.S. federal statutory rate to the actual tax rate for the years ended February 28, 2017 and February 29, 2016:
| For the Year Ended February 28, 2017 | For the Year Ended February 29, 2016 | |||||||
| US federal statutory income tax rate | -34% | -34% | ||||||
| State tax - net of benefit | -6% | -6% | ||||||
| Total provision for income taxes | 0% | 0% | ||||||
| Non-deductible expenses, net of federal benefit | 0% | 0% | ||||||
| Increase in valuation allowance | 40% | 40% | ||||||
| Minimum state taxes | 1% | 1% | ||||||
| Total provision for income taxes | 1% | 1% | ||||||
The Company's most significant non-deductible expenses relate to shares of stock issued for various agreements which aggregate approximately $673,000 since inception.
The components of the Company's deferred tax assets for federal and state income taxes as of February 28, 2017 and February 29, 2016 consisted of the following:
| February 28, 2017 | February 29, 2016 | |||||||
| Non-current deferred tax assets | ||||||||
| Net operating loss carry forwards | $ | 322,000 | $ | 305,000 | ||||
| Less: valuation allowance | (322,000 | ) | (305,000 | ) | ||||
| Net deferred tax assets | $ | – | $ | – | ||||
During the years ended February 28, 2017 and February 29, 2016, the valuation allowance increased approximately $17,000 and $28,000, respectively. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of February 29, 2016. Net operating losses may be limited as a result of the merger with Cloud Security and the sale of stock to Goldenrise.
The United States federal tax return years 2013 through 2016 are still subject to tax examination by the United States Internal Revenue Service, however, the Company does not have any ongoing tax examinations. The Company is subject to examination by the California Franchise Tax Board for the years 2013 to 2016 and currently does not have any ongoing tax examinations.
The United States federal and California state tax returns years 2015 have not been filed and the 2016 returns are on extension.