XML 26 R14.htm IDEA: XBRL DOCUMENT

Income Taxes

12 Months Ended

Sep. 30, 2021

6. Income Taxes

The components of income (loss) before income tax and income tax expense are comprised of the following:


	For the Years Ended
	September 30,
	2021		2020

	(Amounts in thousands)
Income (loss) before income tax (benefit) expense¹
U.S.	$	1,316	$	(941)
Foreign		(173)		(121)
	$	1,143	$	(1,062)
Income tax (benefit) expense:
Current:
Federal	$	(674)	$	(435)
State		(30)		21
Foreign		—		—
	$	(704)	$	(414)
Deferred:
Federal	$	1,148	$	548
State		—		250
	$	1,148	$	798
	$	444	$	384

¹ FY 2021 consists of $678 thousand from continuing operations and $465 thousand from discontinued operations totaling $1,143 thousand.

The effective income tax rate differed from the statutory federal income tax rate due to the following:


	For the Years Ended September 30,
	2021				2020

	(Dollar amounts in thousands)
Computed “expected” tax expense (benefit)	$	240	21.0	%	$	(225)	21.2	%
Increases (reductions) in taxes resulting from:
State income taxes, net of federal tax benefit		(38)	(3.3)	%		(7)	0.7	%
Foreign rate differential		13	1.1	%		2	(0.2)	%
Exclusion of PPP Loan Forgiveness Income		(458)	(40.1)	%		—	—
Exclusion of the UK's Gain on Sale of Disc Ops Entity		(98)	(8.6)	%		—	—
Permanent differences		(22)	(1.9)	%		(3)	0.3	%
Change in valuation allowance		1,598	139.8	%		1,005	(94.7)	%
Research and development credit		(116)	(10.1)	%		(107)	10.1	%
Benefit of US Federal NOL carryback		(359)	(31.4)	%		(222)	20.9	%
Return to Provision Adjustments		(394)	(34.5)	%		—	—
Other items		78	6.8	%		(59)	5.5	%
Income tax (benefit) expense	$	444	38.8	%	$	384	(36.2)	%

Significant components of the Company's net deferred tax assets and liabilities as of September 30, 2021 and 2020 are as follows:


	September 30,		September 30,
	2021		2020

	(Amounts in thousands)
Deferred tax assets:
Pension	$	1,006	$	1,410
Intangibles		61		94
Other reserves and accruals		628		1,131
Inventory reserves and other		232		684
Federal and state tax credits		1,141		391
Federal and state net operating loss carryforwards		123		3
Foreign net operating loss carryforwards		2,333		1,766
Depreciation and amortization		(190)		(244)
Gross deferred tax assets		5,334		5,235
Less: valuation allowance		(5,334)		(4,086)
Realizable deferred tax asset	$	—	$	1,149

The Company regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. In assessing the realizability of deferred tax assets, we consider taxable income in prior carryback years, as permitted under the tax law, our forecasted taxable earnings, tax planning strategies, and the expected timing of the reversal of temporary differences. This determination requires significant judgment, including assumptions about future taxable income that are based on historical and projected information and is performed on a jurisdiction-by-jurisdiction basis.

The valuation allowance against deferred tax assets increased by approximately $1.2 million during FY 2021, which was primarily due to the recording of a full valuation allowance against the U.S. deferred tax assets during the year. During the period ended September 30, 2021, management assessed the positive and negative evidence in the U.S. operations, and concluded that it is more likely than not that deferred tax assets as of September 30, 2021 will not be realized in light of recent results, the ongoing effects of the coronavirus (“COVID-19”) pandemic, and the resulting economic fallout. We continue to maintain a full valuation allowance against our U.K. deferred tax assets as we have experienced cumulative losses 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.

As of September 30, 2021, and 2020, the Company had immaterial U.S. net operating loss carryforwards for federal purposes. Due to changes in federal tax law enacted as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act during FY 2021, the Company is carrying back all of its available federal net operating losses to recover federal taxes paid in prior periods. As a result, there is no federal net operating loss carryforwards as of September 30, 2021.

As of September 30, 2021, and 2020, the Company had U.S. tax credit carryforwards for federal purposes of $753 and $0 thousand, respectively. The U.S. tax credit carryforwards begin to expire after the Company's FY 2038. The FY 2021 federal R&D credit and all carried forward credits will be used to offset future tax liabilities. As of September 30, 2021, and 2020, the Company had U.S. net operating loss carryforwards for state purposes of approximately $3.4 million and $76 thousand, respectively, which are available to offset future taxable income through 2041. As of September 30, 2021, the Company had state tax credit carryforwards of $1 million available to reduce future state tax expense, of which $50 thousand has unlimited carryover status and the remainder of the credits are available through FY 2035.

As of September 30, 2021, the Company had U.K. net operating loss carryforwards of approximately $12.3 million that have an indefinite life with no expiration.

Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $7.9 million and $10.3 million as of September 30, 2021 and 2020, respectively. The Company's is considering cash distribution of undistributed foreign earnings in the future and will continue to assess the potential impact of any future distributions on U.S. taxes. The state tax 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, 2021, the total amount of uncertain tax liabilities relates to state tax credit carryforwards and are all recorded net in deferred 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		For the Year Ended
	September 30, 2021		September 30, 2020

	(Amounts in thousands)
Balance, beginning of year	$	343	$	—
Additions for tax positions of current year		60		78
Additions for tax positions of prior years		30		265
Balance, end of period	$	433	$	343

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 2018 through 2021, and believes that tax adjustments in any audited year will not be material.

- 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 + Details