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Note D - Income Taxes | 12 Months Ended
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Sep. 30, 2019
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | NOTE D – INCOME TAXES Components of the income tax expense are as follows for the years ended:
|  | September 30, |  | September 30, |  | September 30,
|  | 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 1,260,552 |  |  | $ | 1,472,512 |  |  | $ | 1,627,125 |
State |  |  | 103,130 |  |  |  | 120,034 |  |  |  | 78,552 |
Current income tax expense |  |  | 1,363,682 |  |  |  | 1,592,546 |  |  |  | 1,705,677 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (38,534 | ) |  |  | (463,798 | ) |  |  | 8,680 |
State |  |  | 35,289 |  |  |  | 124,657 |  |  |  | 23,617 |
Deferred income tax expense |  |  | (3,245 | ) |  |  | (339,141 | ) |  |  | 32,297 |
Income tax expense |  | $ | 1,360,437 |  |  | $ | 1,253,405 |  |  | $ | 1,737,974 |
The following is a reconciliation of the federal statutory income tax rate to the effective tax rate as a percent of pre-tax income for the following years ended:
|  | September 30, |  | September 30, |  | September 30,
|  | 2019 |  | 2018 |  | 2017
Federal statutory rate |  |  | 21 | % |  |  | 24 | % |  |  | 34 | %
Federal rate change |  |  | - |  |  |  | (5 | %) |  |  | - |
State income taxes |  |  | 2 | % |  |  | 2 | % |  |  | 1 | %
Permanent differences |  |  | - |  |  |  | - |  |  |  | (1 | %)
Change in valuation allowance |  |  | (1 | %) |  |  | (3 | %) |  |  | (4 | %)
Expiration and utilization of state NOL’s |  |  | 2 | % |  |  | 4 | % |  |  | 3 | %
Research and development credits |  |  | (2 | %) |  |  | (1 | %) |  |  | (1 | %)
Excess tax expense (benefits) from stock-based compensation |  |  | 1 | % |  |  | 2 | % |  |  | (1 | %)
Tax rate |  |  | 23 | % |  |  | 23 | % |  |  | 31 | %
The federal statutory rate for the year ended September 31, 2018 is a blended rate due to the change in federal statutory rates resulting from the Tax Cuts and Jobs Act which was signed into law on December 22, 2017. As of September 30, 2019, the current income tax payable was approximately $145,000 and as of September 30, 2018, the current income tax payable was approximately $464,000. Current income tax payable amounts are included in Accrued Expenses in the Company’s balance sheets. As of September 30, 2019 and 2018, the Company had no U.S. federal net operating loss (“NOL”) carry-forwards and approximately $1,905,000 and $3,468,000 state NOLs, respectively. The state NOL carry forward amounts expire in fiscal years 2020 through 2022 if not utilized. In addition, as of September 30, 2019, the Company has Minnesota research and development and alternative minimum tax credits of $241,000 and $50,000, respectively. The Company has not recorded a valuation allowance on these research and development related deferred tax assets as the Company believes it is more likely than not they will be utilized before they begin to expire in fiscal year 2030. Significant components of deferred income tax assets and liabilities are as follows at:
|  | September 30, |  | September 30,
|  | 2019 |  | 2018
Deferred income tax assets (liabilities): |  |  |  |  |  |  |  |
Intangibles |  | $ | (75,190 | ) |  | $ | (70,467 | )
Property and equipment depreciation |  |  | (521,586 | ) |  |  | (552,119 | )
Net operating loss carry forwards and credits |  |  | 377,505 |  |  |  | 464,274 |
Stock-based compensation |  |  | 114,118 |  |  |  | 151,558 |
Inventories |  |  | 350,197 |  |  |  | 400,111 |
Prepaid expenses |  |  | (63,252 | ) |  |  | (60,806 | )
Accrued expenses and reserves |  |  | 371,414 |  |  |  | 250,787 |
Goodwill |  |  | (607,882 | ) |  |  | (583,415 | )
Gross deferred tax liability |  |  | (54,676 | ) |  |  | (77 | )
Valuation allowance |  |  | (47,014 | ) |  |  | (104,858 | )
Net deferred tax liability |  | $ | (101,690 | ) |  | $ | (104,935 | )
Realization of net operating loss carryforwards and other deferred tax temporary differences are contingent upon future taxable earnings. The Company’s deferred tax assets were reviewed for expected utilization by assessing the available positive and negative factors surrounding their recoverability. As of September 30, 2018, the Company’s remaining valuation allowance of approximately $105,000 related to state net operating loss carry forwards. During the fourth quarter of 2019, the Company reversed approximately $58,000 of its valuation allowance. This consisted of decreasing the valuation allowance for the expiration and utilization of state net operating losses in 2019 of approximately $68,000 and increasing the valuation allowance by approximately $10,000 for future expected NOL utilization based on updated profitability estimates and changes to the loss utilization rules. The remaining valuation allowance balance as of September 30, 2019 of approximately $47,000 relates entirely to state net operating loss carry forwards we do not expect to utilize. The Company will continue to assess the assumptions used to determine the amount of our valuation allowance and may adjust the valuation allowance in future periods based on changes in assumptions of estimated future income and other factors. If the valuation allowance is reduced, we would record an income tax benefit in the period the valuation allowance is reduced. If the valuation allowance is increased, we would record additional income tax expense. The valuation allowance activity for the years ended September 30, 2019, 2018, and 2017 is as follows:
Year Ended |  | Balance at Beginning of Year |  | Income Tax Expense (Benefit) |  | Reversal for State NOL Expiration and Utilization |  | Balance at End of Year
September 30, 2019 |  | $ | 104,858 |  |  | $ | 10,448 |  |  | $ | (68,292 | ) |  | $ | 47,014 |
September 30, 2018 |  |  | 159,154 |  |  |  | 79,377 |  |  |  | (133,673 | ) |  |  | 104,858 |
September 30, 2017 |  |  | 322,404 |  |  |  | (32,154 | ) |  |  | (131,096 | ) |  |  | 159,154 |
The Company completed an Internal Revenue Code Section 382 analysis of the loss carry forwards in 2009 and determined then that all of the Company’s loss carry forwards are utilizable and not restricted under Section 382. The Company has not updated its Section 382 analysis subsequent to 2009 and does not believe there have been any events subsequent to 2009 that would impact the analysis. The Company is required to recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applies the interpretation to all tax positions for which the statute of limitations remained open. The Company had no liability for unrecognized tax benefits and did not recognize any interest or penalties during the years ended September 30, 2019, 2018, or 2017. The Company is subject to income taxes in the U.S. federal jurisdiction, and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local, income tax examinations by tax authorities for fiscal years ending prior to 2004. We are generally subject to U.S. federal and state tax examinations for all tax years since 2003 due to our net operating loss carryforwards and the utilization of the carryforwards in years still open under statute. During the year ended September 30, 2018, the Company was examined by the U.S. Internal Revenue Service for fiscal year 2016. This examination resulted in no adjustments. The Company changed its fiscal year end in 2007 from March 31 to September 30.

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- 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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