INCOME TAXES

12 Months Ended

Sep. 30, 2023

INCOME TAXES

INCOME TAXES

NOTE I – INCOME TAXES

The income tax provision (benefit) for the fiscal years ended September 30, 2023 and 2022 consists of the following:

	2023		2022
Federal:
Current	$	—	$	—
Deferred		(3,249,000)		(2,781,000)
		(3,249,000)		(2,781,000)
State and local:
Current		—		—
Deferred		(1,161,000)		(852,000)
		(1,161,000)		(852,000)
Foreign:
Current		—		—
Deferred		(121,000)		11,000
		—		—
Change in valuation allowance		4,531,000		3,622,000
Income tax provision (benefit)	$	—	$	—

NOTE I – INCOME TAXES, continued

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, 2023 and 2022 as follows:

	2022		2022
Statutory federal income tax rate	21.00	%	21.00	%
Statutory state and local income tax rate (1%, as of September 30, 2022 and 2021), net of federal benefit	9.56	%	6.20	%
Stock based compensation	(1.76)	%	(5.01)	%
Permanent differences related to warrants	1.80	%	14.60	%
Other permanent differences	1.97	%	1.70	%
Canada NOL	1.28	%	0.00	%
Federal R&D Credit	9.93	%	3.83	%
Change in deferred tax rate	1.67	%	1.56	%
Change in valuation allowance	(45.45)	%	(43.88)	%
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,
	2023		2022
Deferred tax assets (liabilities):
Stock based compensation	$	993,000	$	847,000
Depreciation and amortization		440,000		113,000
Net operating loss carry forward		25,250,000		22,872,000
Impairment of intangibles		227,000		205,000
Capitalized research and development		726,000		—
Lease liability		342,000		—
Tax credits		3,060,000		2,055,000
Other		324,000		397,000
Deferred tax assets		31,362,000		26,489,000
Intellectual property		(684,000)		—
ROU asset		(342,000)		—
		(1,026,000)		—
Less: valuation allowance		(31,020,000)		(26,489,000)
Net deferred tax liability	$	(684,000)	$	—

As of September 30, 2023, the Company has approximately $101,526,000 of Federal and $56,892,000 of State net operating loss “NOL” carryforwards available. The Federal NOL of $60,374,000 begins to expire after 2022. The Federal NOLs generated in tax years beginning after December 31, 2017 have no expiration period due to the Tax Cuts and Jobs Act that was enacted in 2017. 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, and as a result of the August 2022 public offering. The annual limitation ranges between $94,000 and $1,528,742 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 $4,531,000.

The Company has Federal research and development credits of approximately $2,539,000 that will begin to expire after 2034. The Company also has state investment tax credits of $475,000 that will begin to expire after 2029.

NOTE I – INCOME TAXES, continued

On August 16, 2022, President Biden signed the Inflation Reduction Act,, which is effective for tax years beginning on or after January 1, 2023 For tax years beginning after December 31, 2021 the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and instead required taxpayers to capitalize and amortize them over five or fifteen years beginning in 2022.  The Company included the impact of the research and development expenditures in its tax expense for the fiscal year ended September 30, 2023.  The Company will continue to monitor the possible future impact of changes in tax legislation.