INCOME TAXES

12 Months Ended

Sep. 30, 2018

8. INCOME TAXES

Significant components of our deferred tax assets and liabilities as of September 30 are as follows:

	2018			2017
Deferred tax assets:
Inventory	$	101		$	137
Accrued compensation and vacation		68			169
Accrued expenses and other		277			357
Domestic net operating loss carryforwards		3,328			5,142
Basic difference for intangible assets		114			—
Stock compensation expense		5			9
AMT credit carryover		62			76
Total deferred tax assets		3,955			5,890

Deferred tax liabilities:
Prepaid expenses		(60	)		(128	)
Basis difference for fixed assets		(280	)		(383	)
Total deferred tax liabilities		(340	)		(511	)

Total net deferred tax assets		3,615			5,379

Valuation allowance for net deferred tax assets		(3,553	)		(5,379	)

Net deferred tax asset	$	62		$	—

Significant components of the provision (benefit) for income taxes are as follows as of the year ended September 30:

	2018			2017
Current:
Federal	$	(6	)	$	21
State and local		16			3
Deferred:
Federal		(70	)		—
State and local		—			—
Income tax expense (benefit)	$	(60	)	$	24

The effective income tax rate on continuing operations varied from the statutory federal income tax rate as follows:

	2018			2017
Federal statutory income tax rate		21.0	%		34.0	%
Increases (decreases):
State and local income taxes, net of Federal tax benefit, if applicable		(5.0	)%		0.2	%
Other nondeductible expenses		(13.6	)%		1.3	%
Valuation allowance changes		21.1	%		(32.9	)%
Effective income tax rate		23.5	%		2.6	%

On December 22, 2017, the United States (“U.S.”) enacted significant changes to the U.S. tax law following the passage and signing of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (previously known as “The Tax Cuts and Jobs Act”). The Tax Act included significant changes to existing tax law, including a permanent reduction to the U.S. Federal corporate income tax rate from 35% to 21%.

Accordingly, the Company’s income tax provision as of September 30, 2018 reflects the current year impacts of the U.S. Tax Act on the estimated annual effective tax rate. The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%. The impact from the permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% is effective January 1, 2018 (the “Effective Date”). When a U.S. federal tax rate change occurs during a fiscal year, taxpayers are required to compute a weighted daily average rate for the fiscal year of enactment and as a result the Company calculated a U.S. federal statutory income tax rate of 24.5% for the current fiscal year end September 30, 2018. However, we have adjusted the statutory income tax rate to 21% as this is the rate when the deferred balances are expected to reverse.

The difference between the newly enacted federal statutory rate of 21.0% and our effective rate of 23.5% is due to changes in our valuation allowance on our net deferred tax assets along with realizing the deferred tax asset associated with the AMT credit carryforward. The impact of the newly enacted federal statutory rate as a result of the Tax Act to the net deferred tax assets is a provisional amount of approximately $1,718 decrease with any offsetting decrease to the valuation allowance. The amount is provisional because the final number cannot be calculated until the underlying timing differences are known rather than estimated.

Realization of deferred tax assets associated with the net operating loss carryforward and credit carryforward is dependent upon generating sufficient taxable income prior to their expiration. The valuation allowance in fiscal 2018 and 2017 was $3,553 and $5,379, respectively for our domestic operations. Payments made in fiscal 2018 and 2017 for income taxes amounted to $5 and $17, respectively.

At September 30, 2018, we had domestic net operating loss carryforwards of approximately $12,264 for federal and $16,747 for state, which expire from September 30, 2022 through 2032.

We may recognize the tax benefit from an uncertain tax position only if it more likely than not to be sustained upon regulatory examination based on the technical merits of the position. The amount of the benefit for which an exposure exists is measured as the largest amount of benefit determined on a cumulative probability basis that we believe is more likely than not to be realized upon ultimate settlement of the position. At September 30, 2018, no liability remained for other uncertain income tax positions.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2018			2017
Balance at beginning of year	$	16		$	16
Additions for tax positions		10			-
Settlements		(26	)		-
Balance at end of year	$	-		$	16

As noted in the table above, there have been no additional gross uncertain tax positions during fiscal 2018 based on any federal or state tax position.

We are no longer subject to U.S. Federal tax examinations for years before 2014 or state and local for years before 2013, with limited exceptions. For federal purposes, the tax attributes carried forward could be adjusted through the examination process and are subject to examination 3 years from the date of utilization.

We have assessed the application of Internal Revenue Code Section 382 regarding certain limitations on the future usage of net operating losses. No limitation applies as of September 30, 2018 and we will continue to monitor activities in the future.