Note 4 - Income Taxes

12 Months Ended

Sep. 30, 2015

Note 4

– Income Taxes

The provision (benefit) for income taxes for the years ended September 30, 2015, 2014 and 2013 consists of:

	2015			2014			2013
Continuing operations:
Current	$	1,114,000		$	496,000		$	1,113,351
Deferred		(341,000	)		(276,000	)		(15,000	)
		773,000			220,000			1,098,351
Discontinued operations – current		−			(385,000	)		(62,000	)
Total provision (benefit) for income taxes	$	773,000		$	(165,000	)	$	1,036,351

The following table summarizes the differences between the U.S. federal statutory rate and the Company’s effective tax rate for continuing operations financial statement purposes for the years ended September 30, 2015, 2014 and 2013:

	2015			2014			2013
Statutory tax rate		34.0	%		34.0	%		34.0	%
State income taxes, net of U.S. federal tax benefit		2.1	%		5.7	%		4.3	%
Net operating loss		(4.0	%)		(10.2	%)		(3.1	%)
Return to accrual adjustment		(3.0	%)		1.0	%		(2.4	%)
Additional state tax deduction for federal taxes		−			(5.6	%)		−
Charges without tax benefit		1.6	%		3.9	%		1.1	%
Tax credits and other exclusions		3.3	%		(3.8	%)		4.4	%

Company’s effective tax rate		34.0	%		25.0	%		38.3	%

The tax credits and other exclusions rate for fiscal year 2015 includes, among other things, the impact of deferred taxes resulting from intangible and goodwill basis differences

The tax effects of temporary differences related to deferred taxes at September 30, 2015 and 2014 consist of the following:

	2015		2014
Deferred tax assets:
Net operating loss carryforwards	$	236,000	$	335,000
Accounts receivable		96,000		77,000
Inventory		1,319,000		1,066,000
Intangibles		215,000		79,000
Accrued expenses		266,000		141,000
Stock options		212,000		163,000
Other		28,000		16,000
		2,372,000		1,877,000

Deferred tax liabilities:
Financial basis in excess of tax basis of certain assets		832,000		728,000
Other		50,000		−

Net deferred tax asset	$	1,490,000	$	1,149,000

The above net deferred tax asset is presented in the Company’s consolidated balance sheets at September 30, 2015 and 2014 as follows:

	2015			2014
Deferred tax asset – current	$	1,776,000		$	1,416,000
Deferred tax liability – noncurrent		(286,000	)		(267,000	)

	$	1,490,000		$	1,149,000

Utilization of the Company’s net operating loss carryforward, totaling approximately $0.6 million at September 30, 2015, to reduce future taxable income is limited to an annual deductible amount of approximately $0.3 million. The net operating loss carryforward expires in varying amounts in 2019 and 2020.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance. The Company has concluded, based on its historical earnings and projected future earnings, that it will be able to realize the full effect of the deferred tax assets and no valuation allowance is needed.

Based upon a review of its income tax positions, the Company believes that its positions would be sustained upon an examination by the Internal Revenue Service and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded. Generally, the Company is no longer subject to examinations by the U.S. federal, state or local tax authorities for tax years before 2012.