Deferred Tax Benefit

12 Months Ended

Jun. 30, 2017

Deferred Tax Benefit

Deferred Tax Benefit

16.       DEFERRED TAX BENEFIT

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Net deferred tax assets consist of the following components as of June 30, 2017 and 2016:

	June 30, 2017			June 30, 2016
Deferred tax assets:
NOL carryforward	$	5,680,400		$	4,900,400
R&D carryforward		113,100			113,100
Accrued vacation payable		45,900			45,900
Allowance for doubtful accounts		4,100			17,800
Depreciation		3,000			—
Deferred tax liabilities:
Depreciation		—			(900	)
Valuation allowance		(5,846,500	)		(5,076,300	)
Net deferred tax asset	$	—		$	—

The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rate of 39% to pretax income from continuing operations for the years ended June 30, 2017 and 2016 due to the following:

	June 30, 2017			June 30, 2016
Book income	$	(827,800	)	$	(2,858,700	)
Nondeductible expenses		200,200			602,100
Accrued vacation payable		22,300			22,300
Allowance for bad debt		(13,700	)		15,900
Depreciation		2,100			(16,500	)
Valuation allowance		616,900			2,234,900
Income tax expense	$	—		$	—

At June 30, 2017, the Company had net operating loss carryforwards of approximately $9,246,000, that may be offset against future taxable income through 2037. No tax benefit has been reported in the June 30, 2017 and 2016 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.