. INCOME TAXES

Income taxes consisted of the following:

	Years ended September 30,
	2020			2019
Current tax provision
Federal	$	-		$	-
State		2			2
Total current tax provision		2			2
Deferred provision
Federal		(4,852	)		485
State		(856	)		85
Total deferred provision		(5,708	)		570

Provision for income taxes	$	(5,706	)	$	572

A reconciliation of income taxes at the federal statutory rate of

21%

to the effective tax rate was as follows:

	Years ended September 30,
	2020			2019
Income taxes computed at the federal statutory rate	$	1,296		$	715
Change in valuation allowance		(7,134	)		(5	)
Nondeductible compensation, interest expense and other		24			40
State income taxes, net of federal tax benefit		364			155
Change in R&D credit carryover		95			(66	)
Stock options and other prior year true-ups		(7	)		(142	)
Foreign rate differential		(21	)		(8	)
Refundable Federal AMT Credit		-			28
State business credit utilization		(323	)		(145	)
Provision for income tax (benefit) expense	$	(5,706	)	$	572

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,

2020

and

2019

were as follows:

	At September 30,
	2020			2019
Deferred tax assets
Net operating loss carryforwards		11,985			12,682
Research and development credit		5,686			5,856
Share-based compensation		317			506
Equipment		(405	)		(78	)
Patents		15			24
Accruals and other		2,526			1,222
State tax deduction		-			(6	)
Federal AMT Credit		-			24
Allowances		183			169
Right of use asset		(1,334	)		-
Gross deferred tax asset		18,973			20,399
Less valuation allowance		(7,878	)		(15,012	)
Total deferred tax assets, net of valuation allowance	$	11,095		$	5,387

September

30,

2020,

the Company had net deferred tax assets of approximately

$11,095.

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,

2020,

the Company had federal NOL carryforwards of approximately

$40,181,

which expire from

2022

through

2037.

The Company also has an estimated

$2,343

and

$438

of federal and state R&D tax credits, respectively, at

September

30,

2020,

a portion of which will begin to expire in the current 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, 2019

and continues to maintain a valuation allowance of

$7,878,

related to federal R&D tax credit carryforwards and net operating loss carryforwards, R&D credits and foreign tax credits related to Genasys Spain. Since future financial results

may

differ from previous estimates, periodic adjustments to the Company's valuation allowances

may

be necessary.

As of

September 30, 2020,

the Company had

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%

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

for the year ended

September 30, 2018.

As of

September 30, 2019,

the Company's accounting for the applicable elements of the legislation is complete and there were

material changes to the provisional amounts previously recorded.