NOTE 12

INCOME TAXES

No provision was made for federal income taxes since the Company has significant net operating losses. At June 30, 2015, the Company had operating loss carryforwards of approximately $3,000,000. The net operating loss carry-forwards may be used to reduce taxable income through the year 2035. The principal difference between the net operating loss for book purposes and income tax purposes results from non-cash charges to operations related to stock options and warrants and common shares issued for services that are not currently deductible for income tax purposes. The availability of the Company’s net operating loss carry-forwards are subject to significant limitation since there was more than 50% positive change in the ownership of the Company’s stock.

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 liabilities and assets as of June 30, 2014 and 2015, are as follows:

	June 30,
	2015			2014
Deferred tax assets:
Federal net operating loss	$	979,000		$	457,000
State net operating loss		145,000			67,000

Total deferred tax assets		1,124,000			524,000
Less: valuation allowance		(1,124,000	)		(524,000	)

	$	-		$	-

The Company has provided a 100% valuation allowance on the deferred tax assets at June 30, 2015 and 2014, to reduce such assets to zero, since there are significant limitations on the utilization of the Company’s net operating loss carry-forwards and there is no assurance that the Company will generate future taxable income to utilize such assets. Management reviews this valuation allowance requirement periodically and makes adjustments as warranted. The valuation allowance increased $600,000 and $361,000.

The reconciliation of the effective income tax rate to the federal statutory rate for the years ended June 30, 2015 and 2014 is as follows:

	June 30,
	2015			2014

Federal income tax rate		(34.0	)%		(34.0	)%
State tax, net of federal benefit		(5.0	)		(5.0	)
Increase in valuation allowance		39.0			39.0

Effective income tax rate		0.0	%		0.0	%