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Note 12 - Income Taxes | 12 Months Ended
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Sep. 30, 2018
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | 12. INCOME TAXES Income taxes consisted of the following:
|  | Years ended September 30, |
|  | 2018 |  |  | 2017 |
Current tax provision |  |  |  |  |  |  |  |
Federal |  | $ | - |  |  | $ | - |
State |  |  | 1,600 |  |  |  | 1,600 |
Total current tax provision |  |  | 1,600 |  |  |  | 1,600 |
Deferred provision |  |  |  |  |  |  |  |
Federal |  |  | 2,017,900 |  |  |  | 166,600 |
State |  |  | 356,100 |  |  |  | 29,400 |
Total deferred provision |  |  | 2,374,000 |  |  |  | 196,000 |
Provision for income taxes |  | $ | 2,375,600 |  |  | $ | 197,600 |
A reconciliation of income taxes at the federal statutory rate of 24.28% to the effective tax rate was as follows:
|  | Years ended September 30, |
|  | 2018 |  |  | 2017 |
Income taxes computed at the federal statutory rate |  | $ | (332,000 | ) |  | $ | (231,000 | )
Change in valuation allowance |  |  | 2,711,000 |  |  |  | 197,000 |
Change in tax rate |  |  | 6,754,000 |  |  |  | - |
Expired net operating loss carryforwards |  |  | 441,000 |  |  |  | 283,000 |
Nondeductible compensation, interest expense and other |  |  | 39,000 |  |  |  | 21,000 |
State income taxes, net of federal tax benefit |  |  | (41,000 | ) |  |  | (24,000 | )
Change in R&D credit carryover |  |  | (133,000 | ) |  |  | (98,000 | )
Stock options and other prior year true-ups |  |  | (499,000 | ) |  |  | 48,000 |
Acquired deferred tax assets of Genasys Spain |  |  | (6,564,400 | ) |  |  | 1,600 |
Provision for income taxes |  | $ | 2,375,600 |  |  | $ | 197,600 |
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, 2018 and 2017 were as follows:
|  | At September 30, |
|  | 2018 |  |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 13,644,000 |  |  | $ | 16,443,000 |
Research and development credit |  |  | 5,805,000 |  |  |  | 2,559,000 |
Share-based compensation |  |  | 532,000 |  |  |  | 898,000 |
Equipment |  |  | (41,000 | ) |  |  | (80,000 | )
Patents |  |  | 35,000 |  |  |  | 69,000 |
Accruals and other |  |  | 818,000 |  |  |  | 546,000 |
State tax deduction |  |  | (5,000 | ) |  |  | (7,000 | )
Federal AMT Credit |  |  | 53,000 |  |  |  | 52,000 |
Allowances |  |  | 133,000 |  |  |  | 157,000 |
Gross deferred tax asset |  |  | 20,974,000 |  |  |  | 20,637,000 |
Less valuation allowance |  |  | (15,017,000 | ) |  |  | (12,306,000 | )
Total deferred tax assets, net of valuation allowance |  | $ | 5,957,000 |  |  | $ | 8,331,000 |
At September 30, 2018, the Company had net deferred tax assets of approximately $5,957,000. 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, 2018, the Company had federal NOL carryforwards of approximately $48,720,000, which expire from 2022 through 2037. The Company also has an estimated $2,114,000 and $911,000 of federal and state R&D tax credits, respectively, at September 30, 2018, a portion of which will begin to expire in the 2019 tax year. 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 nine 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 a leading player in the world market. As a result, during 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 net losses in the years ended September 30, 2018 and 2017, it was significantly impacted by a non-recurring expense in fiscal 2018 and 2017. 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, 2018 and continues to maintain a valuation allowance of $15,017,000. Since future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary. As of September 30, 2018, 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. The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. Subsequently, the SEC issued Staff Accounting Bulletin (“SAB”) 118, which allows for the recording of provisional amounts related to U.S. tax reform and subsequent adjustments related to U.S. tax reform during a measurement period not to exceed one year from the enactment date. Accordingly, the Company remeasured its net deferred tax assets on a provisional basis based on the rates at which they are expected to be realized in the future, which is generally 21% resulting in a decrease to our net deferred tax assets of $2,374,000 for the year ended September 30, 2018. The Company will continue to analyze certain aspects of the Act, and refine its calculations as appropriate during the measurement period, which could affect the measurement of these balances.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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