14. INCOME TAXES

12 Months Ended

Sep. 30, 2017

Income Taxes

INCOME TAXES

The Company generated operating losses for the years ended September 30, 2017 and 2016 on which it has recognized a full valuation allowance. The Company accounts for its state franchise and minimum taxes as a component of its general and administrative expenses.

The following table presents the components of the provision for income taxes for the periods presented:

	Years Ended September 30,
	2017		2016
Current
Federal	$	—	$	—
State		—		—
Total current		—		—
Deferred
Federal		24,000		7,000
State		1,000		1,000
Total deferred		25,000		8,000
Total provision	$	25,000	$	8,000

A reconciliation of the federal statutory income tax rate to the Company's effective income tax rate is as follows:

	Years Ended September 30,
	2017			2016
Federal statutory income tax rate		34.0	%		34.0	%
State income taxes, net of federal benefit		3.2			2.6
Permanent differences		18.9			(7.7	)
Change in valuation allowance		(57.9	)		(29.1	)
Provision for income taxes		(1.8	)%		(0.2	)%

Significant components of the Company's deferred income taxes are shown below:

	Years Ended September 30,
	2017			2016
Deferred tax assets:
Net operating loss carryforwards	$	2,304,000		$	1,333,000
Stock compensation		87,000			4,000
Investments		32,000			-
Accrued expenses		2,000			-
Management fees		-			189,000
Charitable contributions		10,000			5,000
Total deferred tax assets		2,435,000			1,531,000
Deferred tax liabilities
Prepaid expenses		(31,000	)		-
Management fees		(73,000	)		-
Intangibles		(33,000	)		(12,000	)
Fixed assets		(18,000	)		(2,000	)
Total deferred tax liabilities		(155,000	)		(14,000	)
Net deferred tax assets		2,280,000			1,517,000
Valuation allowance		(2,317,000	)		(1,529,000	)
Net deferred tax liability	$	(37,000	)	$	(12,000	)

The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized. The Company periodically evaluates the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred tax assets will be realizable, the valuation allowance will be reduced. The valuation allowance increased by $788,000 and $1,132,000 as of September 30, 2017 and 2016, respectively.

At September 30, 2017, the Company has federal net operating losses (“NOL”), carryforwards of approximately $6.4 million. The NOL carryforwards begin to expire in 2035.

The above NOL carryforward may be subject to an annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions if the Company experienced one or more ownership changes.

The Company files income tax returns in the United States, and various state jurisdictions. The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. At September 30, 2017 and 2016, there are no unrecognized tax benefits, and there are no significant accruals for interest related to unrecognized tax benefits or tax penalties.