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Income Taxes | 12 Months Ended
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Sep. 30, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The components of income before income tax and income tax expense are comprised of the following:
| For the Years Ended September 30,
| 2018 |  | 2017
| (Amounts in thousands)
Income before income tax: |  |  |
U.S. | $ | (1,077 | ) |  | $ | 3,383 |
Foreign | (29 | ) |  | 22 |
| $ | (1,106 | ) |  | $ | 3,405 |
Income tax expense: |  |  |  |  |
Current: |  |  |  |  |
Federal | $ | 771 |  |  | $ | 1,067 |
State | 47 |  |  | 119 |
Foreign | — |  |  | — |
| 818 |  |  | 1,186 |
Deferred: |  |  |  |  |
Federal | 259 |  |  | (86 | )
State | (118 | ) |  | 37 |
Foreign | (77 | ) |  | 25 |
| 64 |  |  | (24 | )
| $ | 882 |  |  | $ | 1,162 |
As of September 30, 2018, management assessed the positive and negative evidence in the U.S. operations, and estimated we will have sufficient future taxable income to utilize the existing deferred tax assets, except for certain state tax credit carry-forwards. Significant objective positive evidence included the cumulative profits that we realized over the most recent years. This evidence enhances our ability to consider other subjective evidence such as our projections for future growth. Other factors we considered are the likelihood for continued royalty income in future years, and our expectation that the TS segment will continue to be profitable in future years. On the basis of this evaluation, as of September 30, 2018, we have concluded that our U.S. deferred tax asset is more likely than not to be realized. It should be noted however, that the amount of the deferred tax asset realized could be adjusted in future years, if estimates of taxable income during the carryforward periods are reduced, or if objective negative evidence in the form of cumulative loses is present. The recording and ultimate reversal of valuation allowances for our deferred tax asset requires significant judgment associated with past and projected performance. In assessing the realizability of deferred tax assets, we consider our taxable future earnings and the expected timing of the reversal of temporary differences. We recorded a valuation allowance which reduced the gross deferred tax asset to an amount that we believed was more likely than not to be realized because of the cumulative losses incurred in the U.K. in recent years represented sufficient negative evidence to record a valuation allowance against certain deferred tax assets. We continue to maintain a full valuation allowance against our U.K. deferred tax assets as we have experienced cumulative loses and do not have any indication that the operation will be profitable in the future to an extent that will allow us to utilize much of our net operating loss carryforwards. To the extent that actual experience deviates from our assumptions, our projections would be affected and hence our assessment of realizability of our deferred tax assets may change. Reconciliation of federal statutory rate and income tax expense to the Company's effective tax rate and actual income tax expense is as follows:
| For the Years Ended September 30,
| 2018 |  | 2017
| (Dollar amounts in thousands)
Computed “expected” tax expense (benefit) | $ | (269 | ) |  | 24.3 | % |  | $ | 1,158 |  |  | 34.0 | %
Increases (reductions) in taxes resulting from: |  |  |  |  |  |  |
State income taxes, net of federal tax benefit | (107 | ) |  | 9.7 | % |  | 80 |  |  | 2.4 | %
Foreign operations | (70 | ) |  | 6.3 | % |  | 18 |  |  | 0.5 | %
Permanent differences | (14 | ) |  | 1.3 | % |  | (4 | ) |  | (0.1 | )%
Change in valuation allowance | 118 |  |  | (10.7 | )% |  | (37 | ) |  | (1.1 | )%
Impact of 965 one-time transition tax | 771 |  |  | (69.7 | )% |  | — |  |  | — | %
Federal tax rate change | 588 |  |  | (53.2 | )% |  | — |  |  | — | %
Uncertain tax liability adjustment | 11 |  |  | (1.0 | )% |  | 8 |  |  | 0.2 | %
Research & development credit | (125 | ) |  | 11.3 | % |  | (53 | ) |  | (1.6 | )%
Other items | (21 | ) |  | 2.0 | % |  | (8 | ) |  | (0.2 | )%
Income tax expense | $ | 882 |  |  | (79.7 | )% |  | $ | 1,162 |  |  | 34.1 | %
For the years ended September 30, 2018 and 2017, temporary differences, which give rise to deferred tax assets (liabilities), are as follows:
| September 30, 2018 |  | September 30, 2017
| (Amounts in thousands)
Deferred tax assets: |  |  |
Pension | $ | 1,390 |  |  | $ | 1,609 |
Intangibles | 104 |  |  | 219 |
Other reserves and accruals | 451 |  |  | 630 |
Inventory reserves and other | 502 |  |  | 563 |
State credits, net of federal benefit | 380 |  |  | 318 |
Federal and state net operating loss carryforwards | 626 |  |  | 52 |
Foreign net operating loss carryforwards | 1,489 |  |  | 1,531 |
Foreign exchange on intercompany loan | 7 |  |  | (77 | )
Foreign tax credits | — |  |  | 7 |
Depreciation and amortization | (396 | ) |  | (177 | )
Gross deferred tax assets | 4,553 |  |  | 4,675 |
Less: valuation allowance | (2,658 | ) |  | (2,712 | )
Realizable deferred tax asset | 1,895 |  |  | 1,963 |
Gross deferred tax liabilities | — |  |  | — |
Net deferred tax assets | $ | 1,895 |  |  | $ | 1,963 |
The deferred tax valuation allowance decreased by approximately $54 thousand, which is primarily due to the decrease in the U.K. valuation allowance. In assessing the realizability of deferred tax assets, the Company considers its taxable future earnings and the expected timing of the reversal of temporary differences. Accordingly, the Company has recorded a valuation allowance which reduces the gross deferred tax asset to an amount which management believes will more likely than not be realized. The valuation allowance was determined by assessing both positive and negative evidence whether it is more likely than not that deferred tax assets are realizable. Such assessment is done on a jurisdiction-by-jurisdiction basis. The Company's inability to project future profitability beyond fiscal year 2018 and the cumulative losses incurred in recent years in the U.K. represent sufficient negative evidence to record a valuation allowance against certain deferred tax assets. On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act ("Tax Reform Act"). The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system, expanding the tax base and imposing a tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate federal income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The Company has recognized the impact of the Tax Reform Act in these consolidated financial statements and related disclosures. Staff Accounting Bulletin No. 118 ("SAB 118") provides Companies with guidance on accounting for the impact of the Tax Reform Act. Specifically, SAB 118 provides for a measurement period, not to exceed one year, that begins on the date of enactment of December 22, 2017, and ends when the Company has obtained, prepared, and analyzed information needed to complete accounting requirements which is substantially complete. In accordance with SAB 118, the recorded amounts reflecting the impact of the Tax Reform Act in these consolidated financial statements and related disclosures. The impact of the remeasurement of the Company’s US deferred tax assets and liabilities to 21% resulted in a tax expense of approximately $0.5 million consisting of a reduction of the Company’s net deferred tax asset. The Company recorded tax expense of approximately $0.8 million related to the deemed repatriation tax. As new provisions for Global Intangible Low-Tax Income ("GILTI") are effective for tax years beginning after December 31, 2017, the Company has not calculated any tax related impact for GILTI during the period. For fiscal taxpayers, the rate change is effective at the beginning of the Company’s fiscal year, using a blended rate for the annual period. The Company’s blended U.S. statutory tax rate for fiscal 2018 is 24.28%. In future years, the corporate tax rate will be 21%. As of September 30, 2018 and 2017, the Company had U.S. net operating loss carryforwards for federal purposes of approximately $1.7 million and $0, respectively, which are available to offset future taxable income with no expiration. The company had U.S. net operating loss carryforwards for state purposes of approximately $0.5 million and $0.4 million, respectively, which are available to offset future taxable income through 2034. As of September 30, 2018, the Company had other state tax credit carryforwards of $55 thousand available to reduce future state tax expense which has unlimited carryover status. As of September 30, 2018, the Company concluded that a net increase of $41 thousand of the valuation allowance for the U.S. was appropriate. As part of the Company’s analysis, the Company evaluated, among other factors, its recent history of generating taxable income in state jurisdictions and its near-term forecasts of future taxable income. The net increase in the Company’s valuation allowance of $41 thousand is to reserve for state tax credit carryforwards that the Company believes will expire unused. As of September 30, 2018, the Company had U.K. net operating loss carryforwards of approximately $8.8 million that have an indefinite life with no expiration. Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $12.7 million and $2.8 million at September 30, 2018 and 2017, respectively. The Company is considering cash distribution of undistributed foreign earnings in the future and will continue to access the potential impact of any future distributions on U.S. taxes. The state impact of a distribution of foreign earnings and profits would not be material. In addition, the calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions. The Company records liabilities for estimated tax obligations in the U.S. and other tax jurisdictions. These estimated tax liabilities include the provision for taxes that may become payable in the future. As of September 30, 2018, the total amount of uncertain tax liabilities was $220 thousand. We recognized $11 thousand of interest and potential penalties accrued related to unrecognized tax benefits in our provision for income taxes. A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:
| For the Year Ended September 30, 2018 |  | For the Year Ended September 30, 2017
| (Amounts in thousands)
Balance, beginning of year | $ | 209 |  |  | $ | 202 |
Accrued penalties and interest | 11 |  |  | 7 |
Balance, end of period | $ | 220 |  |  | $ | 209 |
We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company has reviewed the tax positions taken on returns filed domestically and in its foreign jurisdictions for all open years, generally fiscal 2014 through 2018, and believes that tax adjustments in any audited year will not be material, except for the uncertain tax position described above.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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