Note 15 - Income Taxes

12 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

15. Income Taxes:

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

	YEAR ENDED SEPTEMBER 30,
	2023		2022
United States	$	11,190	$	(19,425	)
Foreign		1,379		(3,258	)
	$	12,569	$	(22,683	)

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

	YEAR ENDED SEPTEMBER 30,
	2023			2022
Current
Federal	$	63		$	(12	)
Foreign		244			202
State		59			—
		366			190
Deferred:
Federal		—			—
Foreign		(3	)		(17	)
		(3	)		(17	)
	$	363		$	173

The difference between the effective tax rate reflected in the provision for income taxes and the U.S. federal statutory rate were as follows (in thousands):

	YEAR ENDED SEPTEMBER 30, 2023						YEAR ENDED SEPTEMBER 30, 2022
	Amount			Percent			Amount			Percent
Expense (benefit) for U.S. federal income tax at statutory rate	$	2,639			21.0	%	$	(4,763	)		21.0	%
Research and experimentation tax credit		(480	)		(3.9	)%		6			(0.1	)%
State income taxes, net of federal income tax benefit		302			2.5	%		(265	)		1.2	%
Nondeductible goodwill		—			—			911			(4.0	)%
Change in valuation allowance		(2,459	)		(19.6	)%		3,768			(16.6	)%
Change in fair value of contingent consideration		—			—			(278	)		1.2	%
Disallowed stock compensation		171			1.4	%		217			(1.0	)%
Impact due to foreign currency translation		51			0.4	%		460			(2.0	)%
Other items		139			1.1	%		117			(0.5	)%
Total tax expense and effective tax rate	$	363			2.9	%	$	173			(0.8	)%

The income tax expense for fiscal year 2023 primarily reflects tax accrual for U.S. state and Russian income tax.  The income tax expense for fiscal year 2022 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 United States and Canada 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):

	YEAR ENDED SEPTEMBER 30,
	2023			2022
Deferred income tax assets:
Inventories	$	8,269		$	8,513
Loss and tax credit carry-forwards		29,581			34,643
Accrued compensation		870			609
R&D expenditure capitalization		1,538			—
Property and equipment		504			578
Other reserves		590			359
Subtotal deferred income tax assets		41,352			44,702
Valuation allowance		(38,917	)		(41,376	)
Net deferred income tax assets		2,435			3,326
Deferred income tax liabilities:
Intangible assets		(292	)		(356	)
Property and equipment		(2,153	)		(2,874	)
Other		(6	)		(109	)
Total deferred income tax liabilities		(2,451	)		(3,339	)
Net deferred income tax liabilities	$	(16	)	$	(13	)

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. On September 30, 2023, the Company had $3.8 million of cash and cash equivalents held by its foreign subsidiaries. On September 30, 2023 and 2022, the temporary difference related to undistributed earnings for which no deferred taxes have been provided was approximately $8.2 million and $6.9 million, respectively.

The Company is subject to taxation in the United States as well as various states and foreign jurisdictions. Tax years that remain subject to examination by significant tax jurisdictions are the United States for tax years ending after 2016, Russia for tax years ending after 2020, the United Kingdom for tax years ending after 2021, and Canada for tax years ending after 2019.

As of September 30, 2023, the Company had net operating loss (“NOL”) carry-forwards of approximately $78.2 million in the United States, $18.9 million in Canada and $0.7 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 $32.6 million begins to expire in 2029 and those originating after the 2017 Tax Act of $45.6 million do not expire.

Management of the Company has concluded that it was not more-likely-than-not that its U.S., Canadian and Russian net deferred tax assets will be realized in accordance with U.S. GAAP. On  September 30, 2023 and September 30, 2022, the Company had a valuation allowance against its U.S. net deferred tax assets of $33.7 million and $35.5 million, respectively. On  September 30, 2023 and September 30, 2022, the Company had a valuation allowance against its Canadian net deferred tax assets of $4.8 million and $5.2 million, respectively. On  September 30, 2023 and September 30, 2022, the Company had a valuation allowance against its Russian net deferred tax assets of $0.4 million and $0.7 million, respectively.