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17. INCOME TAXES | 12 Months Ended
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Sep. 30, 2020
Income Tax Disclosure [Abstract] |
INCOME TAXES | The Company generated operating losses for the years ended September 30, 2020 and 2019 on which it has recognized a full valuation allowance. The Company accounts for its state franchise and minimum taxes as a component of its general and administrative expenses. The following table presents the components of the provision for income taxes from continuing operations for the periods presented:
|  | Years Ended September 30, |
|  | 2020 |  |  | 2019 |
Current |  |  |  |  |  |
Federal |  | $ | - |  |  | $ | - |
State |  |  | - |  |  |  | - |
Total current |  |  | - |  |  |  | - |
Deferred |  |  |  |  |  |  |  |
Federal |  |  | (1,345,300 | ) |  |  | (2,359,000 | )
State |  |  | - |  |  |  | - |
Total deferred |  |  | (1,345,300 | ) |  |  | (2,359,000 | )
Total provision |  | $ | (1,345,300 | ) |  | $ | (2,359,000 | )
A reconciliation of the federal statutory income tax rate to the Company's effective income tax rate is as follows:
|  | Years Ended September 30, |
|  | 2020 |  |  | 2019 |
Federal statutory income tax rate |  |  | 21.0 | % |  |  | 21.0 | %
State income taxes, net of federal benefit |  |  | (1.1 | ) |  |  | (1.2 | )
Permanent differences |  |  | 3.1 |  |  |  | (1.0 | )
Contingent derivative expense |  |  | (55.3 | ) |  |  | (14.3 | )
Limitation on net operating losses |  |  | 21.3 |  |  |  | - |
Tax impact of non-controlling interest |  |  | - |  |  |  | - |
Change in valuation allowance |  |  | (0.9 | ) |  |  | 0.4 |
Reclassification to discontinued operations |  |  | - |  |  |  | - |
Benefit from (provision for) income taxes |  |  | (11.9 | )% |  |  | 4.9 | %
Significant components of the Company's deferred income taxes are shown below:
|  | Years Ended September 30, |
|  | 2020 |  |  | 2019 |
Deferred tax assets: |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 5,914,000 |  |  | $ | 4,933,000 |
Capital loss carryforward |  |  | 616,000 |  |  |  | 485,000 |
Allowance for doubtful accounts |  |  | 5,000 |  |  |  | 95,000 |
Stock compensation |  |  | 691,000 |  |  |  | 510,000 |
Investments |  |  | 685,000 |  |  |  | 608,000 |
Accrued expenses |  |  | 444,000 |  |  |  | 66,000 |
Inventory reserve |  |  | 20,000 |  |  |  | 0 |
Capitalized expenses |  |  | 60,000 |  |  |  | 66,000 |
Charitable contributions |  |  | 42,000 |  |  |  | 41,700 |
Total deferred tax assets |  |  | 8,477,000 |  |  |  | 6,804,700 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Prepaid expenses |  |  | (434,000 | ) |  |  | (405,000 | )
Management fees |  |  | 0 |  |  |  | 0 |
Intangibles |  |  | (4,650,000 | ) |  |  | (4,604,000 | )
Fixed assets |  |  | (709,000 | ) |  |  | (360,000 | )
Total deferred tax liabilities |  |  | (5,793,000 | ) |  |  | (5,369,000 | )
Net deferred tax assets |  |  | 2,684,000 |  |  |  | 1,435,700 |
Valuation allowance |  |  | (3,579,000 | ) |  |  | (3,676,000 | )
Net deferred tax liability |  | $ | (895,000 | ) |  | $ | (2,240,300 | )
The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized. The deferred tax liabilities that result from indefinite life intangibles cannot be offset by deferred tax assets. The Company periodically evaluates the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred tax assets will be realizable, the valuation allowance will be reduced. Under Internal Revenue Code (IRC) Section 382, the use of net operating loss (“NOL”) carryforwards may be limited if a change in ownership of a company occurs. During the year ending September 30, 2018, the company determined that a change of ownership under IRC Section 382 had occurred during the years ending September 30, 2017 and 2015. As a result of these ownership changes, the pre-ownership change NOL carryforwards would be limited and approximately $2.1 million of such NOLs will expire before being utilized. Therefore, at September 30, 2018 the Company reduced the deferred tax asset and related valuation allowance associated with these NOLs by approximately $0.5 million due to IRC Section 382. During the year ended September 30, 2020, the Company determined that a change in ownership under IRC had occurred during the year ending September 30, 2019. As a result of these ownership changes, the pre-ownership change NOL carryforwards would be limited and approximately $11.4 million of such NOLs will expire before being utilized. Therefore, at September 30, 2020 the Company reduced the deferred tax asset and related valuation allowance associated with these NOLs by approximately $2.7 million due to IRC Section 382. The total valuation allowance decreased by $97,000 and increased by $1,359,000 as of September 30, 2020 and 2019, respectively. At September 30, 2020, the Company has utilizable NOL carryforwards of approximately $25.3 million which for federal purposes will carryforward indefinitely. The Company accounts for its state franchise and minimum taxes as a component of its general and administrative expenses. The Company files income tax returns in the United States, and various state jurisdictions. The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. At September 30, 2020 and 2019, there are no unrecognized tax benefits, and there are no significant accruals for interest related to unrecognized tax benefits or tax penalties. The CARES Act, which was enacted on March 27, 2020, includes several significant provisions for corporations, including the usage of net operating losses and payroll benefits. The Company analyzed the provisions of the CARES Act and determined there was no effect on its provision for the year ended September 30, 2020 and will continue to evaluate the impact, if any, the CARES Act may have on the Company’s consolidated financial statements and disclosures. On December 20, 2018, the Company completed a two-step merger with Cure Based Development (see Note 2). As a result of the Mergers the Company established as part of the purchase price allocation a net deferred tax liability related to the book-tax basis of certain assets and liabilities of approximately $4.6 million. The Company has had a valuation allowance against the net deferred tax assets, with the exception of the deferred tax liabilities that result from indefinite-life intangibles ("naked credits"). The Company has determined that using the general methodology for calculating income taxes during an interim period for the quarter ending December 31, 2019, provided for a wide range of potential annual effective rates. Therefore, the Company has calculated the tax provision on a discrete basis under ASC 740-270-30-36(b) for the quarter ending December 31, 2019, March 31, 2020, and June 30, 2020. Given available information to date and the most probable scenario given the facts and circumstances, management’s expectation is that the Company will generate enough indefinite life deferred tax assets from post-merger NOLs to reduce the naked credits to zero during the year, and continue to record a valuation allowance on remaining DTAs. As a result, the Company decreased the deferred tax liability from $2,240,300 to $0 and a recorded a deferred tax benefit of $2,240,300 for the quarter ending December 31, 2019. The Company recorded $0 income tax provision for the quarter ending March 31, 2020 and June 30, 2020. During the quarter ending September 30, 2020 the Company completed a study and determined there was ownership changes under IRC section 382 in the year ending September 30, 2019. These ownership changes under section 382 resulted in a decrease in the amount of indefinite-life deferred tax assets available to offset the indefinite-life deferred tax liabilities and the recognition of $895,000 of naked credits for the quarter.

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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