Note 8. Income Taxes

The provision for income taxes consists of the following for the years ended June 30, 2016 and 2015:

	Years Ended June 30,
	2016		2015
Current
Federal	$	-	$	-
State		3,796		4,892
Foreign (Mexico)		24,366		26,000
Deferred
Federal		-		-
Foreign		-		-
State		-		-
Provision for income tax expense	$	28,162	$	30,892

During the year ended June 30, 2016, the Company recorded a provision for income tax expense of $28,162 which consisted of $3,796 in state income tax payments and $24,366 in foreign (Mexico) income tax payments. During the year ended June 30, 2015, the Company recorded a provision for income tax expense of $30,892 which consisted of $4,892 in state income tax payments and $26,000 in foreign (Mexico) income tax payments

The reconciliation of the effective income tax rate to the federal statutory rate is as follows:

	Years Ended June 30,
	2016			2015
Federal income tax rate		34.0	%		34.0	%
State tax, net of federal benefit		(5.0)	%		(5.0)	%
Permanent differences		(5.6)	%		167.1	%
Effect of reversal of deferred tax liability		-	%		-	%
Change in valuation allowance		(29.6)	%		(200.1)	%
Other		-	%		-	%
Effective income tax rate		(6.2)	%		(4.0)	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at June 30, 2016 and 2015 are as follows:

	June 30, 2016		June 30, 2015
Deferred tax assets:
Federal net operating loss carryforward	$	2,016,304	$	2,482,321
State net operating loss carryforward		415,279		536,444
Intangibles amortization		243,929		239,483
Stock based compensation		1,378,602		1,135,879
Other		200,602		166,602
Total deferred tax assets		4,254,716		4,560,729
Deferred tax liability
Intangible Assets		-		-
Fixed asset depreciation		48,252		42,211
Net deferred tax assets		4,302,968		4,602,940
Less valuation allowance		(4,302,968)		(4,602,940)
	$	-	$	-

The Company has provided a valuation allowance on the deferred tax assets at June 30, 2016 and 2015 to reduce such asset to zero, since there is no assurance that the Company will generate future taxable income to utilize such asset. Management will review this valuation allowance requirement periodically and make adjustments as warranted. The net change in the valuation allowance for the year ended June 30, 2016 was a decrease of $299,972.

At June 30, 2016 and 2015, the Company had federal net operating loss (“NOL”) carryforwards of approximately $8,716,000 and $10,086,000, respectively, and state NOL carryforwards of approximately $4,862,000 and $6,232,000, respectively. Federal NOLs could, if unused, expire in 2030. State NOLs, if unused, could expire in 2020.

Effective January 1, 2007, the Company adopted FASB guidelines that address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. This guidance also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of June 30, 2016 and 2015, the Company did not have a liability for unrecognized tax benefits, and no adjustment was required at adoption.

The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company is subject to U.S. federal or state income tax examinations by tax authorities for tax years after 2010.

The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of June 30, 2016 and 2015, the Company has no accrued interest or penalties related to uncertain tax positions. Additionally, tax years 2010 through 2015 remain open to examination by the major taxing jurisdictions to which the Company is subject.