Income and Other Taxes

12 Months Ended

Sep. 30, 2021

The Company’s income (loss) from operations before income taxes consisted of the following:


	For the Fiscal Year Ended September 30,
(in thousands)	2021		2020		2019
Domestic	$	25,744	$	(7,159)	$	(35,100)
Foreign	471		219		(830)
Loss before income taxes	$	26,215	$	(6,940)	$	(35,930)

The Company’s income tax expense consisted of the following:


	For the Fiscal Year Ended September 30,
(in thousands)	2021		2020		2019
Federal:
Current	$	—	$	30	$	—
Deferred	—		(43)		—
	—		(13)		—
State:
Current	990		98		54
Deferred	—		(25)		—
	990		73		54
Foreign:
Current	(418)		—		—
Deferred	—		—		—
	(418)		—		—
Total income tax expense	$	572	$	60	$	54

A reconciliation of the provision for income taxes, with the amount computed by applying the statutory U.S. federal and state income tax rates to continuing operations income before provision for income taxes is as follows:



	For the Fiscal Year Ended September 30,
(in thousands)	2021			2020			2019
Income tax expense (benefit) computed at U.S. federal statutory rate	$	5,506		$	(1,457)		$	(7,540)
State tax expense (benefit), net of U.S. federal effect	990			(156)			(906)
Foreign tax rate differential	24			13			(28)
Effect due to change in tax rate	—			(137)			(183)
Shortfall from stock based compensation	(122)			432			248
Other	103			94			223
Federal benefit on PPP loan forgiveness	(1,363)			—			—
Change in uncertain tax positions	(419)			—			—
State net operating loss carryforward adjustment	454			533			139
Change in valuation allowance	(4,601)			738			8,101
Income tax expense	$	572		$	60		$	54
Effective tax rate	2.2		%	0.9		%	0.2		%

Significant components of deferred tax assets are as follows:


	As of September 30,
(in thousands)	2021		2020
Federal net operating loss carryforwards	$	96,289	$	100,363
Foreign net operating loss carryforwards	1,372		1,680
Income tax credit carryforwards	2,510		2,671
Inventory reserves	2,229		2,320
Accounts receivable reserves	62		55
Accrued warranty reserve	269		193
State net operating loss carryforwards	6,356		5,970
Stock compensation	979		806
Deferred compensation	476		443
Fixed assets and intangibles	(497)		(348)
ROU lease liability	3,289		3,529
ROU lease assets	(3,195)		(3,467)
Other	1,372		1,322
Total deferred tax assets	111,511		115,537
Valuation allowance	(111,511)		(115,537)
Net deferred tax liabilities	$	—	$	—

For the fiscal years ended September 30, 2021, 2020 and 2019, the Company recorded income tax expense of approximately $0.6 million, $0.1 million and $0.1 million, respectively. Income tax expense for the fiscal year ended September 30, 2021 is comprised primarily of California state income tax due to temporary suspension of net operating loss credits and other state minimum tax expense, partially offset by the release of a reserve on uncertain tax benefits due to statutory limitation expiration. Income tax expense for the fiscal year ended September 30, 2020 is comprised primarily of state minimum tax expense partially offset by the reversal of a deferred tax liability related to the Concord Real Property. Income tax expense for the fiscal year ended September 30, 2019 is primarily comprised of state minimum tax expense.

For the fiscal years ended September 30, 2021, 2020 and 2019, the effective tax rate on operations was 2.2%, 0.9% and 0.2%, respectively. The higher tax rate for the fiscal year ended September 30, 2021 is primarily due to the higher California state income tax due to temporary suspension of net operating loss credits. The lower tax rate for the fiscal year ended September 30, 2020 was primarily due to the operating loss and state minimum tax expense. The lower tax rate for the fiscal year ended September 30, 2019 was primarily due to the effect of the Tax Cuts and Jobs Act of 2017, which resulted in a credit to the Company on future tax payments for past AMT amounts paid and the current period operating loss. The Company uses some estimates to forecast permanent differences between book and tax accounting.

We have not provided for income taxes on non-U.S. subsidiaries’ undistributed earnings as of September 30, 2021 because we plan to indefinitely reinvest the unremitted earnings of the non-U.S. subsidiaries and all of the non-U.S. subsidiaries historically have negative earnings and profits.

All deferred tax assets have a full valuation allowance at September 30, 2021. On a quarterly basis, the Company evaluates the positive and negative evidence to assess whether the more likely than not criteria, has been satisfied in determining whether there will be further adjustments to the valuation allowance.

During the fiscal years ended September 30, 2021, the Company released the ASC 740-10 reserve on uncertain tax benefits due to statutory limitation expiration. During the fiscal year ended September 30, 2020, there were no material increases or decreases in unrecognized tax benefits.

As of September 30, 2021, the Company had net operating loss carryforwards for U.S. federal income tax purposes of approximately $458.5 million which begin to expire in 2022. As of September 30, 2021, the Company had foreign net operating loss carryforwards of $5.5 million which begin to expire in 2022 as well as state net operating loss carryforwards of approximately $72.8 million which begin to expire in 2022. As of September 30, 2021, the Company also had tax credits (primarily foreign income and U.S. research and development tax credits) of approximately $2.5 million. The research credits begin to expire in 2022. Utilization of net operating loss and tax credit carryforwards are subject to a substantial annual limitation due to the ownership change limitations set forth in Section 382 of the Code and similar state provisions. The Company prepared an Internal Revenue Code 382 analysis to determine the annual limitations on the Company’s consolidated net operating loss carryforwards. As a result of the $458.5 million of U.S. net operating loss carryforwards, approximately

$230.2 million is subject to an annual limitation and $228.3 million of the net operating losses are not subject to an annual limitation. Such annual limitations could result in the expiration of the net operating loss and tax credit carryforwards before utilization.

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


(in thousands)	Amount
Balance as of September 30, 2019	$	419
Adjustments based on tax positions related to the current year	—
Adjustments based on tax positions of prior years	—
Balance as of September 30, 2020	419
Adjustments based on tax positions related to the current year	—
Adjustments based on tax positions of prior years	(419)
Balance as of September 30, 2021	$	—

As of September 30, 2021 and 2020, we had approximately $0 million and $0.6 million, respectively, of interest and penalties accrued as tax liabilities on the balance sheet. As we released the entire unrecognized tax benefits, as well as the associated interest and penalties as of September 30, 2021, there is no uncertain tax positions that will be paid or settled within the next 12 months . Interest that is accrued on tax liabilities is recorded within interest expense on the consolidated statements of operations.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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