INCOME TAXES

12 Months Ended

Sep. 30, 2014

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE J – INCOME TAXES

The income tax provision (benefit) for the years ended September 30, 2014, 2013 and 2012 consists of the following:

	2014			2013			2012
Federal:
Current	$	-			-		$	-
Deferred		643,000			2,955,000			1,422,000
		643,000			2,955,000			1,422,000
State and local:
Current		-			-			-
Deferred		13,000			407,000			196,000
		13,000			407,000			196,000
Valuation allowance		(656,000	)		(3,362,000	)		(1,618,000	)
Income tax provision (benefit)	$	-			-		$	-

The provision for income taxes differ 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, 2014, 2013 and 2012 as follows:

	September 30,
	2014			2013			2012
Statutory federal income tax rate		34.00	%		34.00	%		34.00	%
Statutory state and local income tax rate (1%, 7.1% and 7.1% as of September 30, 2014, 2013 and 2012, respectively), net of federal benefit		0.66	%		4.69	%		4.69	%
Stock based compensation		0.00	%		(3.27	%)		(10.74	%)
Other		(0.05	%)		0.12	%		0.28	%
Amortization of debt discount		0.00	%		0.00	%		(2.92	%)
Change in valuation allowance		(34.61	%)		(35.54	%)		(25.31	%)
Effective tax rate		0.00	%		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,
	2014			2013
Deferred tax assets (liabilities):
Stock based compensation	$	5,619,000		$	5,486,000
Depreciation and amortization		1,733,000			1,977,000
Impairment of intangibles		40,000			44,000
Amortization of debt discount		15,822,000			17,662,000
Warrant liability		2,917,000			2,905,000
Net operating loss carry forward		14,326,000			11,728,000
Less: valuation allowance		(40,457,000	)		(39,802,000	)
Net deferred tax asset	$	-		$	-

As of September 30, 2014, the Company has approximately $41,482,000 of Federal and $33,626,000 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 $948,000 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.

Based on a study of Section 382 of the Internal Revenue code conducted by the Company at September 30, 2014, deferred tax asset related to net operating loss carryforward is decreased by $6,185,000 at September 30, 2013. Additionally, deferred tax asset at September 30, 2013 have been revised as follows: deferred tax asset related to stock based compensation is increased by $4,908,000; deferred tax asset related to depreciation and amortization is increased by $1,998,000; deferred tax asset related to impairment of intangibles is increased by $44,000; deferred tax asset related to amortization of debt discounts is increased by $17,662,000; deferred tax asset related to warrant liability is increased by $2,905,000; the valuation allowance is increased by $21,332,000, completely offsetting the net increases in the deferred tax assets. The revisions resulted in no change to the net tax provision of the Company at September 30, 2013 and for the fiscal year ended.