11.

INCOME TAXES

Income tax expense on continuing operations for the periods presented differs from the “expected” federal income tax expense computed by applying the U.S. federal statutory rate of 34% to earnings before income taxes for the three and six months ended March 31, as a result of the following:

	For the Three Months				For the Six Months
	Ended March 31,				Ended March 31,
	2016		2015		2016		2015
Computed expected tax expense (benefit)	$	1,899	$	(1,487)	$	3,193	$	251
State income taxes		64		74		127		148
Permanent differences		80		148		90		182
Section 45B credit		(1,750)		-		(1,750)		-
Income tax expense (benefit)	$	293	$	(1,265)	$	1,660	$	581

Included in the Company’s deferred tax liabilities at March 31, 2016 is approximately $16.4 million representing the tax effect of indefinite lived intangible assets from club acquisitions which are not deductible for tax purposes. These deferred tax liabilities will remain in the Company’s balance sheet until the related clubs are sold.

During the quarter ended March 31, 2016, the Company discovered that it had not claimed certain FICA tip credits for certain years and has recently applied for those credits. The total net amount of the credits received, including fiscal years 2012 through the estimated amount as of March 31, 2016, amounts to $1.75 million and has been deducted from income tax expense in the quarter ended March 31, 2016.