Entity information:

NOTE I– INCOME TAXES

 

The income tax provision (benefit) for the fiscal years ended September 30, 2017 and 2016 consists of the following:

 

    2017     2016  
Federal:                
Current   $ -       -  
Deferred     (4,303,000 )     (3,780,000 )
      (4,303,000 )     (3,780,000 )
State and local:                
Current     -       -  
Deferred     (376,000 )     (1,302,000 )
      (376,000 )     (1,302,000 )
                 
Change in valuation allowance     4,679,000       5,082,000  
                 
Income tax provision (benefit)   $ -       -  

 

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S statutory rate to losses before income tax expense for the years ended September 30, 2017 and 2016 as follows:

 

    2017     2016  
             
Statutory federal income tax rate     34.00 %     34.00 %
Statutory state and local income tax rate (1%, as of September 30, 2017 and 2016), net of federal benefit     1.62 %     7.72 %
Stock based compensation     (2.65 )%     (2.33 )%
Other permanent differences     (0.03 )%     0.72 %
Effect of change in deferred tax rate     2.37 %     2.01 %
Adjustment of prior years’ NOLs     0.38 %     0.41 %
Adjustment to depreciation and amortization     -       1.09 %
Adjustment to stock based compensation     -       (2.43 )%
Adjustment to state tax credits     0.70 %     0.55 %
Change in valuation allowance     (36.39 )%     (41.74 )%
Effective tax rate     0.00 %     0.00 %

 

Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the following:

 

    September 30,  
    2017     2016  
Deferred tax assets (liabilities):                
Stock based compensation   $ 2,836,000     $ 2,025,000  
Depreciation and amortization     500,000       351,000  
Amortization of debt discount     16,311,000       16,269,000  
Net operating loss carry forward     16,143,000       12,713,000  
Tax credits     521,000       221,000  
Other     52,000       105,000  
Less: valuation allowance     (36,363,000 )     (31,684,000 )
Net deferred tax asset   $ -     $ -  

  

As of September 30, 2017, the Company has approximately $43,440,000 of Federal and $57,896,000 of State net operating loss “NOL” carryforwards available which begin to expire after 2022. Pursuant to Internal Revenue Code Section 382, the Company’s ability to utilize the NOLs is subject to certain limitations due to changes in stock ownership in prior years. The annual limitation ranges between $786,000 and $1,103,000 and any unused amounts can be carried forward to subsequent years.

 

The Company has provided a full valuation allowance against all of the net deferred tax assets based on management’s determination that it is more likely than not that the net deferred tax assets will not be realized in the future. The valuation allowance increased by $4,679,000.

 

The Company has Federal research and development credits of approximately $381,000 that will expire after 2034. The Company also has state investment tax credits of $140,000 that will expire after 2029.