7.	INCOME TAXES:

We account for income taxes in accordance with FASB Accounting Standards Codification 740, “Income Taxes” (“ASC 740”). Under ASC 740, we recognize deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect those temporary differences to be recovered or settled. We record valuation allowances to reduce our deferred tax assets to the amount expected to be realized by considering all available positive and negative evidence. As of September 30, 2016 and December 31, 2016, we had a valuation allowance on our deferred tax assets of $454,000.

During the three months ended December 31, 2016 we recognized an income tax provision of $1.8 million. The effective income tax rate for the three months ended December 31, 2016 was 40.9%. The adoption in the fourth quarter of fiscal 2016 of ASU 2016-09 resulted in an increase in income tax expense of $201,000 to $748,000 for the three months ended December 31, 2015. As a result of the adoption of ASU 2016-09 the effective income tax rate for the three months ended December 31, 2015 increased to 52%.