Income Taxes

12 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

16. Income Taxes:

Components of loss before income taxes were as follows (in thousands):

	YEAR ENDED SEPTEMBER 30,
	2022			2021
United States	$	(19,425	)	$	(10,628	)
Foreign		(3,258	)		(2,850	)
	$	(22,683	)	$	(13,478	)

The provision for income taxes consisted of the following (in thousands):

	YEAR ENDED SEPTEMBER 30,
	2022			2021
Current
Federal	$	(12	)	$	14
Foreign		202			561
State		—			—
		190			575
Deferred:
Federal		—			—
Foreign		(17	)		3
		(17	)		3
	$	173		$	578

Actual income tax expense differs from income tax expense computed by applying the U.S. statutory federal tax rate of 21% for each of the fiscal years ended September 30, 2022 and 2021 as follows (in thousands):

	YEAR ENDED SEPTEMBER 30,
	2022			2021
Expense (benefit) for U.S federal income tax at statutory rate	$	(4,763	)	$	(2,834	)
Effect of foreign income taxes		3			1
Research and experimentation tax credit		6			(223	)
State income taxes, net of federal income tax benefit		(265	)		153
Nondeductible expenses		927			44
Change in valuation allowance		3,768			2,893
Impact on deferred taxes due to change in tax rate		-			563
Change in fair value of contingent consideration		(278	)		(569	)
Foreign income tax withholding		114			419
Disallowance of stock compensation adjustments in excess of book		217			334
Other items		444			(203	)
	$	173		$	578
Effective tax rate		(0.8	)%		(4.3	)%

The income tax expense for fiscal years 2022 and 2021 primarily reflects withholding tax on rental income earned in foreign jurisdictions. The Company is currently unable to record any tax benefits for its tax losses in the U.S., Canada and the Russian Federation due to the uncertainty surrounding its ability to utilize such losses in the future to offset taxable income.

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. Significant components of the Company’s net deferred income tax assets (liabilities) were as follows (in thousands):

	AS OF SEPTEMBER 30, 2022									AS OF SEPTEMBER 30, 2021
	U.S.			Non U.S.			Total			U.S.			Non U.S.			Total
Deferred income tax assets:
Allowance for doubtful accounts	$	109		$	6		$	115		$	80		$	4		$	84
Inventories		8,295			218			8,513			8,042			—			8,042
Loss and tax credit carry-forwards		29,606			5,037			34,643			27,578			4,945			32,523
Stock-based compensation		262			—			262			398			—			398
Accrued product warranty		99			8			107			77			2			79
Contingent earn-out consideration		—			—			—			917			—			917
Accrued compensated absences		347			—			347			320			—			320
Property and equipment		—			578			578			—			487			487
Prepaid income taxes		—			92			92			—			266			266
Other reserves		30			15			45			114			11			125
Subtotal deferred income tax assets		38,748			5,954			44,702			37,526			5,715			43,241
Valuation allowance		(35,462	)		(5,914	)		(41,376	)		(31,668	)		(5,704	)		(37,372	)
Net deferred income tax assets		3,286			40			3,326			5,858			11			5,869
Deferred income tax liabilities:
Allowance for doubtful accounts		—			—			—			—			—			—
Inventories		—			—			—			—			(6	)		(6	)
Right-of-use assets		(109	)		—			(109	)		(131	)		—			(131	)
Intangible assets		(356	)		—			(356	)		(642	)		—			(642	)
Property, plant and equipment and other		(2,821	)		(53	)		(2,874	)		(5,085	)		(36	)		(5,121	)
Total deferred income tax liabilities		(3,286	)		(53	)		(3,339	)		(5,858	)		(42	)		(5,900	)
Net deferred income tax liabilities	$	—		$	(13	)	$	(13	)	$	—		$	(31	)	$	(31	)

The financial reporting basis of investments in foreign subsidiaries exceed their tax basis. A deferred tax liability is not recorded for this temporary difference because the investment is deemed to be permanent. A reversal of the Company’s plans to permanently invest

in these foreign operations would cause the excess to become taxable. At September 30, 2022, the Company had $2.6 million of cash and cash equivalents held by its foreign subsidiaries. At September 30, 2022 and 2021, the temporary difference related to undistributed earnings for which no deferred taxes have been provided was approximately $6.9 million and $6.5 million, respectively.

Tax return filings which are subject to review by local tax authorities by major jurisdiction are as follows:

•United States—fiscal years ended September 30, 2019 through 2022

•State of Texas—fiscal years ended September 30, 2019 through 2022

•State of New York—fiscal year ended September 30, 2020

•State of California – fiscal years ended September 30, 2019 through 2022

•State of Pennsylvania – fiscal year ended September 30, 2019

•Russian Federation—calendar years 2020 through 2022

•Canada—fiscal years ended September 30, 2019 through 2022

•United Kingdom—fiscal years ended September 30, 2021 through 2022

•Colombia—calendar years 2020 through 2022

The Company had no unrecognized tax liabilities as of September 30, 2022 and 2021.

As of September 30, 2022, the Company had net operating loss (“NOL”) carry-forwards of approximately $106.2 million in the United States, $19.8 million in Canada and $2.3 million in Russia which are available to offset future taxable income in those jurisdictions. The NOL carry-forwards for Canada and Russia begin to expire in 2033 and 2026, respectively. The NOL carry-forward for the United States which originated prior to the 2017 Tax Act of $28.0 million begins to expire in 2028. The Company’s NOLs originating after the 2017 Tax Act of $77.9 million do not expire. The Company has not completed a Section 382 limitation study which may prevent it from using its NOLs in the future.

Management of the Company has concluded that it is more-likely-than-not that its U.S., Canadian and Russian net deferred tax assets will not be realized in accordance with GAAP. At September 30, 2022 and 2021, the Company had a valuation allowance against its U.S. net deferred tax assets of $35.5 million and $31.7 million, respectively. At September 30, 2022 and 2021, the Company had a valuation allowance against Canadian net deferred tax assets of $5.2 million, and $5.4 million, respectively. At September 30, 2022 and 2021, the Company had a valuation allowance against its Russian net deferred tax assets of $0.7 million and $0.3 million, respectively.