10. INCOME TAXES

Income taxes consisted of the following:

	Years ended September 30,
	2016			2015
Current tax benefit
Federal	$	-		$	-
State		1,840			(7,700	)
Total current tax benefit		1,840			(7,700	)
Deferred benefit
Federal		(159,800	)		(7,564,000	)
State		(28,200	)		(775,000	)
Total deferred benefit		(188,000	)		(8,339,000	)
Change in valuation allowance		-			-
Provision for income taxes	$	(186,160	)	$	(8,346,700	)

A reconciliation of income taxes at the federal statutory rate of 34% to the effective tax rate was as follows:

	Years ended September 30,
	2016			2015
Income taxes computed at the federal statutory rate	$	(499,000	)	$	456,000
Change in valuation allowance		(66,000	)		(8,316,000	)
Expired net operating loss carryforwards		487,000			598,000
Nondeductible compensation, interest expense and other		99,000			20,000
State income taxes, net of federal tax benefit		(36,000	)		24,000
Change in R&D credit carryover		(98,000	)		(17,000	)
Stock options and other prior year true-ups		(75,000	)		(1,103,000	)
Other		1,840			(8,700	)
Provision for income taxes	$	(186,160	)	$	(8,346,700	)

The types of temporary differences between the tax basis of assets and liabilities and their approximate tax effects that give rise to a significant portion of the net deferred tax asset at September 30, 2016 and 2015 were as follows:

	At September 30,
Deferred tax assets:	2016			2015
Net operating loss carryforwards	$	16,410,000		$	16,966,000
Research and development credit		2,461,000			2,309,000
Share-based compensation		598,000			468,000
Equipment		(23,000	)		(24,000	)
Patents		102,000			134,000
Accruals and other		832,000			465,000
State tax deduction		(7,000	)		(6,000	)
Federal AMT Credit		52,000			52,000
Allowances		211,000			150,000
Gross deferred tax asset		20,636,000			20,514,000
Less valuation allowance		(12,109,000	)		(12,175,000	)
Total deferred tax assets, net of valuation allowance	$	8,527,000		$	8,339,000

At September 30, 2016, the Company had net deferred tax assets of approximately $20,636,000. The deferred tax assets are primarily composed of federal and state NOL carryforwards and federal and state research and development (“R&D”) credit carryforwards. At September 30, 2016, the Company had federal NOL carryforwards of approximately $46,127,000, which expire from 2022 through 2036. The Company also has an estimated $1,914,000 and $547,000 of federal and state R&D tax credits, respectively, at September 30, 2016, a portion of which will begin to expire in the 2018 tax year. The Company recognizes windfall tax benefits associated with the exercise of stock options directly to stockholders’ equity only when realized. Accordingly, deferred tax assets are not recognized for NOL carryforwards resulting from windfall tax benefits occurring from October 1, 2008 onward. At September 30, 2016, deferred tax assets do not include excess tax benefits from stock-based compensation of approximately $1,130,000.

The Company reviews its ability to realize its deferred tax assets on a quarterly basis.

In doing so, management considers historical and projected taxable income of the Company, along with any tax planning strategies and any other positive or negative evidence. Realization is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards and other deferred assets. The Company has sustained profitability over six of the seven most recent fiscal years. In the past few years, the Company has developed products and expanded its marketing efforts into the mass notification market, which is a very large and growing market. While the Company is still in the early stages of market penetration, it has increased its confidence in forecasted taxable income based on growth opportunities in this market. It has also increased its forecasted revenues and taxable income for its directional product opportunities, where it is the dominant player in the world market. As a result, du

ring the quarter ended September 30, 2015, the Company determined it was more likely than not that a portion of the deferred tax assets will be realized and, accordingly, released a portion of the valuation allowance. While the Company incurred a net loss in the year ended September 30, 2016, the net loss was largely due to non-recurring expenses and the Company expects to utilize the deferred tax asset in the future. The Company adjusted its deferred tax asset value in the quarter ended September 30, 2016 and continues to maintain a valuation allowance of $12,109,000. Since future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary.

The Company recorded a tax provision for the minimum state tax requirement for the year ended September 30, 2016 as the Company’s annual effective tax rate is zero. During the quarter ended June 30, 2012, the Company amended its federal tax return for the year ended September 30, 2008 to make an election to carry back its fiscal year ended September 30, 2008 applicable NOL for a period of 3 years, and carry forward the loss for up to 20 years, as per Section 172(b)(1)(H) of the Internal Revenue Code of 1986 (“Section 172”), as amended per the American Recovery and Reinvestment Tax Act of 2009 for eligible small businesses. As of September 30, 2016, the Company had no unrecognized tax benefits. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

The Company is subject to taxation in the U.S. and various state jurisdictions. All of the Company’s historical tax years are subject to examination by the Internal Revenue Service and various state jurisdictions due to the generation of NOL and credit carryforwards.