Annual report pursuant to Section 13 and 15(d)

17. Income Taxes

17. Income Taxes

12 Months Ended

Sep. 30, 2017

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Income tax expense for the years ended September 30, 2017 and 2016 is as follows:

	2017		2016 (Restated)
Current expense:
Federal	$	313,405	$	103,704
State		243,841		52,745
		557,246		156,449
Deferred expense:
Federal		3,397,732		(15,114,529	)
State		126,841		(609,764	)
		3,524,573		(15,724,293	)
Total income tax expense	$	4,081,819	$	(15,567,844	)

A reconciliation of the differences between the effective and statutory income tax rates for years ended September 30:

	2017				2016 (Restated)
	Amount		Percent		Amount			Percent

Federal statutory rates	$	3,598,424		34%	$	1,830,150			77%
State income taxes		299,216		3%		161,484			7%
Permanent differences		71,908		1%		(1,798,450	)		-75%
Net operating loss adjustment		–				(1,194,004	)		-50%
Property & equipment adjustment		–				742,854			31%
Equity compensation adjustment		–				(2,872,210	)		-120%
Valuation allowance against net deferred tax assets		–				(12,284,278	)		-515%
Other		112,271		1%		(153,390	)		-6%
Effective rate	$	4,081,819		39%	$	(15,567,844	)		-652%

At September 30, deferred income tax assets and liabilities were comprised of:


	2017			2016 (Restated)
Deferred income tax asset, current:
Allowance for bad debts	$	401,866		$	406,733
Accrued expenses		31,183			241,536
Inventory		772,657			414,575
Accrued compensation		–			–
Total deferred income tax asset, current		1,205,706			1,062,844
Less: valuation allowance		–			–
Deferred income tax asset, current, net		1,205,706			1,062,844

Deferred income tax asset (liability), long-term:
Net operating loss		7,804,948			9,915,371
Tax credits		377,776			–
Other		3,743			–
Stock compensation		2,982,009			–
Intangibles		13,126			794,455
Property & equipment		(3,387,298	)		751,912
Total deferred income tax asset, long-term		7,794,304			11,461,738

Less: valuation allowance		–			–
Deferred income tax asset, net		7,794,304			11,461,738

Total deferred income tax asset	$	9,000,010		$	12,524,582

We reduced our valuation allowance by $12,284,278 (as restated) based on the profitable operations of our acquired Marquis subsidiary that can be offset against our net operation loss carryforwards, this release in valuation allowance occurred during the period ending September 30, 2016.

The Company annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of September 30, 2017. The Company’s policy is to record uncertain tax positions as a component of income tax expense.

The Company has net operating loss carry-forwards of approximately $22.7 million as of September 30, 2017 and tax credit carry-forwards of $0.4 million respectively. The net operating loss amounts are subject to IRS code section 382 limitations and expire in 2027. The 2014 through 2016 tax years are open to examination by the various federal and state jurisdictions.

The Company restated the prior year deferred income taxes related to the Marquis acquisition. Certain deferred tax items were not recorded by the Company. The Company has adjusted the deferred taxes associated with property and equipment and stock compensation.

	September 30, 2016
	As previously
	Reported			Adjustment			As restated

Income tax expense (benefit):
Federal statuary rate	$	1,830,150		$	–		$	1,830,150
State taxes, net of federal benefit		161,484			–			161,484
Permanent difference		(852,646	)		(945,804	)		(1,798,450	)
Net operating loss adjustment		(1,083,866	)		(110,138	)		(1,194,004	)
Property and equipment adjustment		–			742,854			742,854
Equity compensation adjustment		–			(2,872,210	)		(2,872,210	)
Valuation allowance		(12,284,278	)		–			(12,284,278	)
Other		(264,065	)		110,675			(153,390	)
	$	(12,493,221	)	$	(3,074,623	)	$	(15,567,844	)