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6. INCOME TAXES
 12 Months Ended
Sep. 30, 2013
Income Tax Disclosure [Abstract]  
6. INCOME TAXES

At September 30, 2013, the Company had a federal net operating loss carryforward of approximately $130 million, which begins to expire during the fiscal year ended in 2018 and is fully expired by the end of the fiscal year ended 2033. In addition, the Company has a general business credit as a result of the credit for increasing research activities (“R&D credit”) of approximately $1.2 million at September 30, 2013, which begins to expire during the fiscal year ended 2020 and is fully expired during the fiscal year ended 2029.  At September 30, 2012, the Company had a federal net operating loss carryforward of approximately $145 million and an R&D credit of approximately $2.3 million. Deferred taxes at September 30, 2013 and 2012 are comprised of the following:

 

    2013     2012  
                 
Net operating loss carryforwards   $ 50,485,248     $ 56,664,358  
                 
R&D credit     1,221,487       2,258,838  
Stock-based compensation     3,323,353       2,455,231  
Capitalized R&D     5,542,816       -   
Vacation and other     270,121       193,163  
Deferred rent     2,356,381       1,278,863  
Total deferred tax assets     63,199,406       62,850,453  
                 
Derivative gain     (8,744,218 )     (4,681,855 )
Depreciation     -        (51,980 )
Fixed assets and intangibles        (1,968 )     -   
                 
Total deferred tax liabilities     (8,746,186 )      (4,733,835 ) 
Valuation allowance     (54,453,220 )     (58,116,618 )
Net deferred tax asset     -        -   

 

In assessing the realization of deferred tax assets, management considered whether it was more likely than not that some portion or all of the deferred tax asset will be realized.  The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income.  Management has considered the history of the Company’s operating losses and believes that the realization of the benefit of the deferred tax assets cannot be reasonably assured.  In addition, under the Internal Revenue Code Section 382, the Company’s ability to utilize these net operating loss carryforwards may be limited or eliminated in the event of a future change in ownership.

 

Internal Revenue Code Section 382 generally defines a change in ownership as the situation where there has been a more than 50 percent change in ownership within the last three years.  Utilization of the Company’s net operating loss carry forwards and tax credit carry forwards may be subject to an annual limitation and as a result, a portion or all of the net operating loss carry forwards and tax credit carry forwards of the Company may expire before utilization. The Company has determined that a change of more than 50 percent in the Company’s ownership may have occurred previously thereby reducing the ability to utilize approximately $18 million in net operating loss carryforwards and $1 million of tax credit carry forwards.

 

The Company has no federal or state current or deferred tax expense or benefit.

 

The Company’s effective tax rate differs from the applicable federal statutory tax rate.  The reconciliation of these rates for the three years ended September 30, 2013 is as follows:

 

    2013     2012     2011  
                         
Federal Rate     34.00 %     34.00 %     34.00 %
State tax rate, net of federal benefit     4.97       5.21       3.22  
State tax rate change     (3.77 )      18.07       (12.06 ) 
Other adjustments     0.00       (0.53 )     (0.04 )
Expired tax attributes     (87.87 )     (33.54 )     0.00  
Adjustment to Deferreds     14.30       0.00       0.00  
Permanent differences     (1.59 )     (0.68 )      (0.48 ) 
Change in Valuation allowance     39.96       (23.53 )     (24.64 )
                         
Effective tax rate     0.00 %     0.00 %     0.00 %

 

The Company applies the provisions of ASC 740, “Accounting for Uncertainty in Income Taxes,” which requires financial statement benefits to be recognized for positions taken for tax return purposes when it is more likely than not that the position will be sustained.  The Company has elected to reflect any tax penalties or interest resulting from tax assessments on uncertain tax positions as a component of tax expense.  The tax return years 2009 through 2012 remain open to examination by the major domestic taxing jurisdictions to which the Company is subject.  All of the Company’s federal net operating losses and R&D business tax credits remain open to adjustments by the IRS when utilized on a return whereby the statute of limitations would not be exhausted until at least three years after utilizing the net operating loss deduction or business tax credit on a tax return.