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14. Provision for Income Taxes
 12 Months Ended
Sep. 30, 2015
Income Tax Disclosure [Abstract]  
Provision for Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A full valuation allowance is established against all net deferred tax assets as of September 30, 2015 and 2014 based on estimates of recoverability. While the Company has optimistic plans for its business strategy, it determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to its ability to generate sufficient profits from its new business model.

  

For the period from July 7, 2015 to September 30, 2015, Marquis Industries, Inc. and subsidiaries is required to file a separate income return, and therefore, the income generated by these subsidiaries cannot be offset against the Company’s net operating losses. Income tax expense for the years ended September 30, 2015 and 2014 is as follows:

 

   2015   2014 
Current expense:          
  Federal  $320,000   $– 
  State   56,000    – 
    376,000    – 
Deferred expense:          
  Federal   –    – 
  State   –    – 
    –    – 
Total income tax expense  $376,000   $– 

 

A reconciliation of the differences between the effective and statutory income tax rates for years ended September 30:

 

   2015   2014 
   Amount   Percent   Amount   Percent 
                     
Federal statutory rates  $(4,874,337)   34%   $(1,584,870)   34% 
State income taxes   (123,292)   1%    (40,088)   1% 
Permanent differences   2,794,987    -19%    200,518    -4% 
Income not offset by net operating losses   327,477    -2%    –    0% 
Valuation allowance against net deferred tax assets   2,251,165    -16%    1,424,439    -31% 
Effective rate  $376,000    -3%   $–    0% 

 

At September 30, deferred income tax assets and liabilities were comprised of:

 

   2015   2014 
Deferred income tax asset, current:          
 Book to tax differences in accounts receivable  $374,621   $259,448 
 Book to tax differences in prepaid assets and accrued expenses   210,428    (21,450)
  Total deferred income tax asset, current   585,049    237,998 
 Less: valuation allowance   (585,049)   (237,998)
 Deferred income tax asset, current, net   –    – 
           
Deferred income tax asset, long-term:          
 Net operation loss carryforwards   10,801,243    8,668,250 
 Book to tax differences in intangible assets   632,557    928,222 
 Book to tax differences in organizational costs   272,239    – 
 Book to tax differences in depreciation   (6,810)   5,710 
    Total deferred income tax asset, long-term   11,669,229    9,602,182 
  Less: valuation allowance   (11,669,229)   (9,602,182)
  Deferred income tax asset, net   –    – 
           
Total deferred income tax asset  $–   $– 

  

The Company has recorded as of September 30, 2015 and 2014 a valuation allowance of $12,284,278 and $9,840,180, respectively, as it believes that it is more likely than not that the deferred tax assets will not be realize in future years. Management has based its assessment on available historical and projected operating results.

 

The Company annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of September 30, 2015.

 

The Company has net operating loss carry-forwards of approximately $40.0 million. Such amounts are subject to IRS code section 382 limitations and expire in 2027. The 2010 to 2013 tax years are still subject to audit.