Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Sep. 30, 2017

INCOME TAXES

The principal components of the Company's net deferred tax assets consisted of the following at September 30:

	2017		2016
Net operating loss carryforwards	$	7,129,736	$	5,424,530
Capitalized expenditures		1,511,187		1,104,928
Research and experimentation credit carryforwards		632,659		458,417
Stock based compensation		2,370,477		1,463,474
Property and Equipment		1,488		1,578
Accrued expenses		20,100		171,083
Gross deferred tax assets		11,665,647		8,624,010
Deferred tax asset valuation allowance		(11,665,647)		(8,624,010)

Net deferred tax assets	$	-	$	-

As of September 30, 2017 and 2016, the Company had federal net operating loss carryforwards of approximately $17,960,000 and $13,675,000, respectively, which may be available to offset future taxable income and which would begin to expire in 2026. As of September 30, 2017 and 2016, the Company had federal research and experimentation credit carryforwards of $526,957 and $380,982, respectively, which may be available to offset future income tax liabilities and which would begin to expire in 2029.

As of September 30, 2017 and 2016, the Company had state net operating loss carryforwards of approximately $16,771,000 and $12,814,000, respectively, which may be available to offset future taxable income and which would begin to expire in 2018. As of September 30, 2017 and 2016, the Company had state research and experimentation credit carryforwards of $162,000 and $119,000, respectively, which may be able to offset future income tax liabilities and which would begin to expire in 2023.

As the Company has not yet achieved profitable operations, management believes the tax benefits as of September 30, 2017 and 2016 did not satisfy the realization criteria set forth in FASB ASC Topic 740, Income Taxes, and therefore has recorded a valuation allowance for the entire deferred tax asset. The valuation allowance increased in 2017 and 2016 by approximately $3,041,000 and $2,767,000, respectively. The Company’s effective income tax rate differed from the federal statutory rate due to state taxes and the Company’s full valuation allowance, the latter of which reduced the Company’s effective federal income tax rate to zero.

The Company experienced an ownership change as a result of the Merger described in Note 1, causing a limitation on the annual use of the net operating loss carryforwards, which are subject to a substantial annual limitation due to the ownership change limitations set forth in Internal Revenue Code Section 382 and similar state provisions.

As of September 30, 2017, the Company is open to examination in the U.S. federal and certain state jurisdictions for tax years ended September 30, 2017, 2016, 2015, and 2014.