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Income Taxes

12 Months Ended

Jun. 30, 2021

Note 8. Income Taxes

The provision for income taxes consists of the following for the years ended June 30, 2021 and 2020:


	Years Ended
	June 30,
	2021		2020
Current
Federal	$	—	$	—
State		2,319		2,201
Foreign (Mexico)		885		5,635
Deferred
Federal		—		—
Foreign		—		—
State		—		—
Provision for income tax expense	$	3,204	$	7,836

During the year ended June 30, 2021, the Company recorded a provision for income tax expense of $3,204 which consisted of $2,319 in state income tax payments and $885 in foreign (Mexico) income tax payments. During the year ended June 30, 2020, the Company recorded a provision for income tax expense of $7,836 which consisted of $2,201 in state income tax payments and $5,635 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,
	2021		2020
Federal income tax rate	21.0	%	21.0	%
State tax, net of federal benefit	5.0	%	5.0	%
Permanent differences	3.0	%	3.2	%
Change in valuation allowance	(30.1)	%	(30.4)	%
Effective income tax rate	(1.1)	%	(1.2)	%

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, 2021 and 2020 are as follows:


	June 30,		June 30,
	2021		2020
Deferred tax assets:
Federal net operating loss carryforward	$	2,344,543	$	2,508,894
State net operating loss carryforward		285,568		354,752
Intangibles amortization		156,196		156,196
Stock based compensation		1,762,884		1,551,272
Other		197,401		186,901
Total deferred tax assets		4,746,592		4,758,015
Deferred tax liability:
Fixed asset depreciation		49,487		49,167
Net deferred tax assets		4,796,079		4,807,182
Less valuation allowance		(4,796,079)		(4,807,182)
	$	—	$	—

The Company has provided a valuation allowance on the deferred tax assets at June 30, 2021 and 2020 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, 2021 was a decrease of $11,103.

At June 30, 2021 and 2020, the Company had federal net operating loss (“NOL”) carryforwards of approximately $15,030,000 and $13,800,000, respectively, and state NOL carryforwards of approximately $6,410,000 and $6,780,000, respectively. Federal NOLs generated in 2018, 2019 and 2020 can be carried forward indefinitely with some limitations, NOLs generated prior to 2018 could, if unused, completely expire in 2038. State NOLs, if unused, completely expire in 2041.

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, 2021 and 2020, the Company did not have a liability for unrecognized tax benefits, and no adjustment was required at adoption.

The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of June 30, 2021 and 2020, the Company has no accrued interest or penalties related to uncertain tax positions.

Company is subject to taxation in the United States and various states and Mexico. The Company is subject to United States federal or state income tax examinations by tax authorities for fiscal years after 2017.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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