Annual report pursuant to Section 13 and 15(d)

Note 3 - Income Taxes

v3.20.2
Note 3 - Income Taxes
 12 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
NOTE
3
– INCOME TAXES
 
Components of income tax expense are as follows for the years ended:
 
    September 30,   September 30,
    2020   2019
Current:                
Federal   $
1,966,491
     $
1,260,552
  
State    
175,201
      
103,130
  
Current income tax expense    
2,141,692
      
1,363,682
  
Deferred:                
Federal    
(252,929
 )    
(38,534
 )
State    
(26, 879)
      
35,289
  
Deferred income tax expense    
(279,808
 )    
(3,245
 )
Income tax expense   $
1,861,884
     $
1,360,437
  
  
The following is a reconciliation of the federal statutory income tax rate to the effective tax rate as a percent of pre-tax income for the following years ended: 
 
    September 30,   September 30,
    2020   2019
Federal statutory rate    
21
 %    
21
 %
State income taxes    
2
 %    
2
 %
Permanent differences:                
Change in valuation allowance    
(1
 %)    
(1
 %)
Expiration and utilization of state NOL's    
-
    
2
 %
Research and development credits    
(2
 %)    
(2
 %)
Excess tax expense (benefits) from stock-based compensation    
-
    
1
 %
Tax rate    
20
 %    
23
 %
 
As of
September 30, 2020,
the current income tax payable was approximately
$845,000
and as of
September 30, 2019,
the current income tax payable was approximately
$145,000.
Current income tax payable amounts are included in Accrued Expenses in the Company's balance sheets.
 
As of
September 30, 2020
and
2019,
the Company had
no
U.S. federal net operating loss (“NOL”) carry-forwards and approximately
$769,000
and
$1,905,000
state NOLs, respectively. The state NOL carry forward amounts expire in fiscal years
2021
through
2022
if
not
utilized. In addition, as of
September 30, 2020,
the Company has Minnesota research and development and alternative minimum tax credits of
$337,000
and
$32,000,
respectively. The Company has
not
recorded a valuation allowance on these research and development related deferred tax assets as the Company believes it is more likely than
not
they will be utilized before they begin to expire in fiscal year
2030.
 
Significant components of deferred income tax assets and liabilities are as follows at:
 
 
    September 30,   September 30,
    2020   2019
Deferred income tax assets (liabilities):                
Intangibles   $
(86,319
 )   $
(75,190
 )
Property and equipment depreciation    
(419,896
 )    
(521,586
 )
Net operating loss carry forwards and credits    
351,446
      
377,505
  
Stock-based compensation    
169,730
      
114,118
  
Inventories    
386,296
      
350,197
  
Prepaid expenses    
(43,233
 )    
(63,252
 )
Accrued expenses and reserves    
467,010
      
371,414
  
Goodwill    
(646,916
 )    
(607,882
 )
Gross deferred tax asset (liability)    
178,118
      
(54,676
 )
Valuation allowance    
-
      
(47,014
 )
Net deferred tax asset (liability)   $
178,118
     $
(101,690
 )
 
Realization of NOL carryforwards and other deferred tax temporary differences are contingent upon future taxable earnings. The Company's deferred tax assets were reviewed for expected utilization by assessing the available positive and negative factors surrounding their recoverability.
 
As of
September 30, 2018,
the Company's remaining valuation allowance of approximately
$105,000
related to state net operating loss carry forwards. During the
fourth
quarter of
2019,
the Company reversed approximately
$58,000
of its valuation allowance. This consisted of decreasing the valuation allowance for the expiration and utilization of state NOLs in
2019
of approximately
$68,000
and increasing the valuation allowance by approximately
$10,000
for future expected NOL utilization based on updated profitability estimates and changes to the loss utilization rules. The remaining valuation allowance balance as of
September 30, 2019
of approximately
$47,000
related entirely to state NOL carry forwards we did
not
expect to utilize. As of
September 30, 2020,
the Company's projections indicate that the remaining state NOLs will be utilized prior to their expiration. Accordingly, the Company reversed the previous valuation allowance as it is
no
longer deemed necessary. The Company will continue to assess the assumptions used to determine the amount of our valuation allowance and
may
adjust the valuation allowance in future periods based on changes in assumptions of estimated future income and other factors.
The valuation allowance activity for the years ended
September 30, 2020
and
2019
is as follows:
 
Year Ended     Balance at Beginning of Year       Income Tax Expense (Benefit)       Reversal for State NOL Expiration and Utilization       Balance at End of Year  
September 30, 2020   $
47,014
     $
(5,235
 )   $
(41,779
 )   $
-
  
September 30, 2019    
104,858
     $
10,448
     $
(68,292
 )   $
47,014
  
 
The Company completed an Internal Revenue Code Section
382
analysis of the loss carry forwards in
2009
and determined then that all of the Company's loss carry forwards are utilizable and
not
restricted under Section
382.
The Company has
not
updated its Section
382
analysis subsequent to
2009
and does
not
believe there have been any events subsequent to
2009
that would impact the analysis.
 
The Company is required to recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than
not
sustain the position following an audit. For tax positions meeting the more likely than
not
threshold, the amount recognized in the financial statements is the largest benefit that has a greater than
50
percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applies the interpretation to all tax positions for which the statute of limitations remained open. The Company had
no
liability for unrecognized tax benefits and did
not
recognize any interest or penalties during the years ended
September 30, 2020
or
2019.
 
The Company is subject to income taxes in the U.S. federal jurisdiction, and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is
no
longer subject to U.S. federal, state and local, income tax examinations by tax authorities for fiscal years ending prior to
2004.
We are generally subject to U.S. federal and state tax examinations for all tax years since
2003
due to our NOL carryforwards and the utilization of the carryforwards in years still open under statute.