NOTE J – INCOME TAXES

The income tax provision (benefit) for the fiscal years ended September 30, 2020 and 2019 consists of the following:


	2020		2019
Federal:
Current	$	—	$	—
Deferred		(2,914,000)		(1,658,000)
		(2,914,000)		(1,658,000)
State and local:
Current		—		—
Deferred		(591,000)		308,000
		(591,000)		308,000
Foreign:
Current		—		15,000
Deferred		—		—
		—		15,000
Change in valuation allowance		3,505,000		1,350,000

Income tax provision (benefit)	$	—	$	15,000

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, 2020 and 2019 as follows:


	2020		2019

Statutory federal income tax rate	21.00	%	21.00	%
Statutory state and local income tax rate (1%, as of September 30, 2019 and 2018), net of federal benefit	2.26	%	0.52	%
Stock based compensation	(1.60)	%	(1.62)	%
Other permanent differences	3.83	%	(3.15)	%
Change in deferred tax rate	1.66	%	(2.33)	%
Change in valuation allowance	(27.15)	%	(14.42)	%
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,
	2020		2019
Deferred tax assets (liabilities):
Stock based compensation	$	2,120,000	$	1,960,000
Depreciation and amortization		232,000		277,000
Net operating loss carry forward		17,499,000		14,091,000
Tax credits		1,227,000		1,171,000
Other		355,000		397,000
Less: valuation allowance		(21,433,000)		(17,896,000)
Net deferred tax asset	$	—	$	—

As of September 30, 2020, the Company has approximately $72,475,000 of Federal and $46,066,000 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 as well as during the fiscal year ended September 30, 2020. The annual limitation ranges between $94,000 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 $3,537,000.

The Company has Federal research and development credits of approximately $840,000 that will begin to expire after 2034. The Company also has state investment tax credits of $345,000 that will begin to expire after 2029.