Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Sep. 30, 2020

Note 15: Income Taxes

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, 2020 and 2019 is as follows:

	Year Ended			Year Ended
	September 30, 2020			September 30, 2019
Current expense:
Federal	$	—		$	—
State		887			237
		887			237
Deferred expense:
Federal		4,160			(1,024	)
State		(84	)		(1,226	)
Change in valuation allowance		(6	)		388
		4,070			(1,862	)
Total income tax expense	$	4,957		$	(1,625	)

A reconciliation of the differences between the effective and statutory income tax rates for years ended September 30, 2020 and 2019:

	Year Ended			Year Ended
	September 30, 2020			September 30, 2019
Federal statutory rates		21.0	%		21.0	%
State income taxes, net of federal benefit		3.1	%		11.3	%
Permanent differences		1.5	%		-0.9	%
Bargain gain - purchase accounting		(2.0	)%		—
Property & equipment adjustment		7.4	%		(0.5	)%
Federal carryforward attributes trued up		—			4.8	%
Change in valuation allowance		—			-6.9	%
Other		0.7	%		—
Effective rate		31.7	%		28.8	%

At September 30, 2020 and 2019, deferred income tax assets and liabilities were comprised of:


	September 30, 2020			September 30, 2019
Deferred income tax assets (liabilities):
Allowance for bad debts	$	247		$	352
Accrued expenses		—			223
Inventory		1,201			466
Accrued compensation		120			87
Net operating loss		2,429			5,205
Disallowed interest carryforward		—			1,049
Tax credits		489			27
Stock compensation		2,290			2,232
Intangibles		(1,753	)		(1,142	)
Property & equipment		(5,476	)		(2,906	)
Right of use assets		(8,341	)		—
Lease liabilities		9,525			—
Payroll protection program loans		1,335			—
Other		51			5
Less: Valuation allowance		(1,096	)		(729	)
Total deferred income tax asset	$	1,021		$	4,869

The Company has federal and state net operating loss carryforwards of approximately $8,100 and $11,200 respectively as of September 30, 2020. The federal net operating loss amounts are subject to IRS code section 382 limitations and expire in 2029. State net operating loss amounts begin to expire in 2033. The Company has state tax credit carryforwards as of September 30, 2020 of $600. The 2016 through 2019 tax years are open to examination by the various federal and state jurisdictions. The Company is currently under IRS examination for the September 30, 2017 tax year. There have been no proposed adjustments by the IRS and the Company anticipates completion of the examination by September 30, 2021.

The Company evaluates all available evidence to determine if a valuation allowance is needed to reduce its deferred tax assets. Management has concluded that it is more likely than not that a portion of its existing tax benefits will not be realized. Accordingly, the Company has recorded a valuation allowance of $1,096 at September 30, 2020 to reduce its deferred tax assets.

The Company annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of September 30, 2020. The Company’s policy is to record uncertain tax positions as a component of income tax expense.

- 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.

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