Income Taxes

12 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

17. Income Taxes:    

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

	YEAR ENDED SEPTEMBER 30,
	2020			2019
United States	$	(14,109	)	$	4,105
Foreign		(2,484	)		(1,834	)
	$	(16,593	)	$	2,271

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

	YEAR ENDED SEPTEMBER 30,
	2020			2019
Current
Federal	$	(4	)	$	(16	)
Foreign		2,467			2,401
State		5			16
		2,468			2,401
Deferred:
Federal		—			—
Foreign		181			16
		181			16
	$	2,649		$	2,417

Actual income tax expense (benefit) 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, 2020 and 2019 as follows (in thousands):    

	YEAR ENDED SEPTEMBER 30,
	2020			2019
Expense (benefit) for U.S federal income tax at statutory rate	$	(3,484	)	$	477
Effect of foreign income taxes		(64	)		(101	)
Research and experimentation tax credit		(1,201	)		(812	)
State income taxes, net of federal income tax benefit		(158	)		(161	)
Nondeductible expenses		63			105
Resolution of prior years’ tax matters		(7	)		14
Change in valuation allowance		4,882			964
Impact on deferred taxes due to change in tax rate		196			—
Change in fair value of contingent consideration		214			(444	)
Foreign income tax withholding		1,928			2,358
Disallowance of stock compensation adjustments in excess of book		255			31
Other items		25			(14	)
	$	2,649		$	2,417
Effective tax rate		(16.0	)%		106.4	%

The income tax expense for fiscal years 2020 and 2019 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. 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 asset were as follows (in thousands):

	AS OF SEPTEMBER 30, 2020									AS OF SEPTEMBER 30, 2019
	U.S.			Non U.S.			Total			U.S.			Non U.S.			Total
Deferred income tax assets:
Allowance for doubtful accounts	$	2,813		$	3		$	2,816		$	189		$	3		$	192
Inventories		7,809			33			7,842			7,652			79			7,731
Loss and tax credit carry-forwards		17,431			4,596			22,027			18,156			4,221			22,377
Stock-based compensation		506			—			506			691			—			691
Accrued product warranty		52			2			54			43			4			47
Accrued compensated absences		328			—			328			313			—			313
Property and equipment		—			501			501			—			462			462
Prepaid income taxes		—			517			517			—			753			753
Other reserves		1,009			9			1,018			13			8			21
		29,948			5,661			35,609			27,057			5,530			32,587
Deferred income tax liabilities:
Allowance for doubtful accounts		—			(11	)		(11	)		—			—			—
Intangible assets		(960	)		—			(960	)		(1,386	)		(5	)		(1,391	)
Property, plant and equipment and other		(3,271	)		(31	)		(3,302	)		(4,919	)		(59	)		(4,978	)
Subtotal deferred income tax assets		25,717			5,619			31,336			20,752			5,466			26,218
Valuation allowance		(25,717	)		(5,646	)		(31,363	)		(20,752	)		(5,281	)		(26,033	)
Net deferred income tax assets (liabilities)	$	—		$	(27	)	$	(27	)	$	—		$	185		$	185

Deferred income tax assets and liabilities are reported as follows in the accompanying consolidated balance sheets (in thousands):

	AS OF SEPTEMBER 30,
	2020			2019
Deferred income tax assets, net	$	—		$	236
Deferred income tax liabilities, net		(27	)		(51	)
	$	(27	)	$	185

The 2017 Tax Act was enacted in December 2017. The 2017 Tax Act, among other things, reduces the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018, creates new taxes on certain foreign earnings and may require companies to pay a one-time transition tax on undistributed earnings of certain foreign subsidiaries that were previously tax deferred.  The Company is not required to pay a one-time transition tax on earnings of our foreign subsidiaries since there were no accumulated earnings on a consolidated basis.  

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, 2020, the Company had $5.8 million of cash and cash equivalents held by its foreign subsidiaries.  At September 30, 2020 and 2019, the temporary difference related to undistributed earnings for which no deferred taxes have been provided was approximately $11.6 million and $12.9 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, 2017 through 2020

• State of Texas—fiscal years ended September 30, 2017 through 2020

• State of New York—fiscal years ended September 30, 2018

• State of California – fiscal years ended September 30, 2017 through 2020

• State of Pennsylvania – fiscal years ended September 30, 2018

• Russian Federation—calendar years 2018 through 2020

• Canada—fiscal years ended September 30, 2017 through 2020

• United Kingdom—fiscal years ended September 30, 2019 through 2020

• Colombia—calendar years 2018 through 2020

The Company had no unrecognized tax liabilities as of September 30, 2020 and 2019.

 As of September 30, 2020, the Company had net operating loss (“NOL”) carry-forwards of approximately $51.0 million in the United States, $16.8 million in Canada and $1.1 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 $28.3 million begins to expire in 2028.  The Company’s NOLs originating after the 2017 Tax Act of $22.7 million do not expire.

Management of the Company has concluded that it was more-likely-than-not that its U.S., Canadian and Russian net deferred tax assets will not be realized in accordance with U.S. GAAP.  At September 30, 2020 and 2019, the Company had a valuation allowance against its U.S. net deferred tax assets of $25.7 million and $20.8 million, respectively.  At September 30, 2020 and 2019, the Company had a valuation allowance against Canadian net deferred tax assets of $5.6 million, and $5.3 million, respectively. At September 30, 2020, the Company had a valuation allowance against its Russian net deferred tax assets of $0.2 million.