Income Taxes

12 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

16. Income Taxes:    

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

	YEAR ENDED SEPTEMBER 30,
	2021			2020
United States	$	(10,628	)	$	(14,109	)
Foreign		(2,850	)		(2,484	)
	$	(13,478	)	$	(16,593	)

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

	YEAR ENDED SEPTEMBER 30,
	2021		2020
Current
Federal	$	14	$	(4	)
Foreign		561		2,467
State		—		5
		575		2,468
Deferred:
Federal		—		—
Foreign		3		181
		3		181
	$	578	$	2,649

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, 2021 and 2020 as follows (in thousands):    

	YEAR ENDED SEPTEMBER 30,
	2021			2020
Expense for U.S federal income tax at statutory rate	$	(2,834	)	$	(3,484	)
Effect of foreign income taxes		1			(64	)
Research and experimentation tax credit		(223	)		(1,201	)
State income taxes, net of federal income tax benefit		153			(158	)
Nondeductible expenses		44			63
Change in valuation allowance		2,893			4,882
Impact on deferred taxes due to change in tax rate		563			196
Change in fair value of contingent consideration		(569	)		214
Foreign income tax withholding		419			1,928
Disallowance of stock compensation adjustments in excess of book		334			255
Other items		(203	)		18
	$	578		$	2,649
Effective tax rate		(4.3	)%		(16.0	)%

The income tax expense for fiscal years 2021 and 2020 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 asset were as follows (in thousands):

	AS OF SEPTEMBER 30, 2021									AS OF SEPTEMBER 30, 2020
	U.S.			Non U.S.			Total			U.S.			Non U.S.			Total
Deferred income tax assets:
Allowance for doubtful accounts	$	80		$	4		$	84		$	2,813		$	3		$	2,816
Inventories		8,042			—			8,042			7,809			33			7,842
Loss and tax credit carry-forwards		27,578			4,945			32,523			17,431			4,596			22,027
Stock-based compensation		398			—			398			506			—			506
Accrued product warranty		77			2			79			52			2			54
Contingent earn-out consideration		917			—			917			—			—			—
Accrued compensated absences		320			—			320			328			—			328
Property and equipment		—			487			487			—			501			501
Prepaid income taxes		—			266			266			—			517			517
Other reserves		114			11			125			1,009			9			1,018
		37,526			5,715			43,241			29,948			5,661			35,609
Deferred income tax liabilities:
Allowance for doubtful accounts		—			—			—			—			(11	)		(11	)
Inventories		—			(6	)		(6	)		—			—			—
Right-of-use assets		(131	)		—			(131	)		—			—			—
Intangible assets		(642	)		—			(642	)		(960	)		—			(960	)
Property, plant and equipment and other		(5,085	)		(36	)		(5,121	)		(3,271	)		(31	)		(3,302	)
Subtotal deferred income tax assets		31,668			5,673			37,341			25,717			5,619			31,336
Valuation allowance		(31,668	)		(5,704	)		(37,372	)		(25,717	)		(5,646	)		(31,363	)
Net deferred income tax assets (liabilities)	$	—		$	(31	)	$	(31	)	$	—		$	(27	)	$	(27	)

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

	AS OF SEPTEMBER 30,
	2021			2020
Deferred income tax assets, net	$	—		$	—
Deferred income tax liabilities, net		(31	)		(27	)
	$	(31	)	$	(27	)

Deferred income tax liabilities, net are included as a component of non-current deferred revenue and other liabilities in the accompanying consolidated balance sheets.

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, 2021, the Company had $5.2 million of cash and cash equivalents held by its foreign subsidiaries.  At September 30, 2021 and 2020, the temporary difference related to undistributed earnings for which no deferred taxes have been provided was approximately $6.5 million and $11.6 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, 2018 through 2021

• State of Texas—fiscal years ended September 30, 2018 through 2021

• State of New York—fiscal years ended September 30, 2019

• State of California – fiscal years ended September 30, 2018 through 2021

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

• Russian Federation—calendar years 2019 through 2021

• Canada—fiscal years ended September 30, 2018 through 2021

• United Kingdom—fiscal years ended September 30, 2020 through 2021

• Colombia—calendar years 2019 through 2021

The Company had no unrecognized tax liabilities as of September 30, 2021 and 2020.

 As of September 30, 2021, the Company had net operating loss (“NOL”) carry-forwards of approximately $101.4 million in the United States, $20.2 million in Canada and $1.5 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 $73.1 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 U.S. GAAP.  At September 30, 2021 and 2020, the Company had a valuation allowance against its U.S. net deferred tax assets of $31.6 million and $25.7 million, respectively.  At September 30, 2021 and 2020, the Company had a valuation allowance against Canadian net deferred tax assets of $5.4 million, and $5.6 million, respectively. At September 30, 2021 and 2020, the Company had a valuation allowance against its Russian net deferred tax assets of $0.3 million and $0.2 million, respectively.