In the Financial Accounting Standards Board (“FASB”) issued ASU - . The standard is required to be adopted by all companies in their fiscal year beginning after but allows companies to early adopt prior to this date. The standard is intended to simplify various aspects of the accounting and presentation of share-based payments. During the quarter ended the Company elected to early adopt this standard as of Adoption of this standard had the following impact on the Company’s financial statements:

 

– The new accounting standard requires that the tax effects of stock-based compensation be recognized in the income tax provision of the Company’s Statements of Earnings. Previously, these amounts were recognized in additional paid-in capital on the Company’s Balance Sheets. The new standard requires these amounts to be recasted within these quarters due to the prospective adoption of this standard in the quarter of fiscal Accordingly, tax benefits related to stock-based compensation awards of and for the quarters ended and respectively, were recognized as reductions of income tax expense in the statements of earnings. These tax benefits reduced our effective income tax rate and for the quarters ended and respectively. The changes were applied on a prospective basis and resulted in an increase in basic and diluted earnings per share of and for the quarters ended and respectively. The change had effect on basic and diluted earnings per share for the quarter ended The net tax benefit recognized during the quarter ended was which reduced our effective tax rate to for the quarter and resulted in an increase in basic and diluted earnings per share of and respectively. The net tax benefit recognized during the year ended was which reduced our effective tax rate to for the year and resulted in an increase in basic and diluted earnings per share of

 

– The standard requires that excess tax benefits from stock-based employee awards be reported as operating activities in the Company’s Statements of Cash Flows. Previously, these cash flows were included as hypothetical inflows/outflows in both operating and financing activities. The Company elected to apply this change on a prospective basis, resulting in an increase in net cash provided by operating activities and a decrease in net cash used by financing activities of and for the months ended the months ended and the months ended respectively, compared to the previously filed Form -Qs.

 

– The standard requires that as of the beginning of the annual period of adoption, previously unrecognized excess tax benefits be recognized on a modified retrospective basis and record a deferred tax asset for the balance with an offsetting adjustment to retained earnings. The Company recognized additional deferred tax assets and adjusted retained earnings in the amount of on

 

In recording stock-based compensation expense, the new standard allows companies to make a policy election as to whether they will include an estimate of awards expected to be forfeited or whether they will account for forfeitures as they occur. We have elected to include an estimate of forfeitures in the computation of our stock-based compensation expense. As this treatment is consistent with the Company’s previous practice, this election had impact on our financial statements.

 

The new standard requires that employee taxes paid when an employer withholds shares for tax-withholding purposes be reported as financing activities in the consolidated statements of cash flows. As this treatment is consistent with the Company’s previous practice, this election had impact on our financial statements.

 

Realization of net operating loss carry-forward 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 its recoverability.

 

As of the Company’s remaining valuation allowance of approximately related to state net operating loss carry forwards. During the quarter of the Company reversed approximately of its remaining valuation allowance. Approximately of the reversal related to the expiration and utilization of state net operating losses in The remaining decrease of is related to higher future year expected NOL utilization based on updated profitability estimates. The remaining valuation allowance balance as of of relates entirely to state net operating loss carry forwards we do expect to utilize. The Company will continue to assess the assumptions used to determine the amount of our valuation allowance and adjust the valuation allowance in future periods based on changes in assumptions of estimated future income and other factors. If the valuation allowance is reduced, we would record an income tax benefit in the period the valuation allowance is reduced. If the valuation allowance is increased, we would record additional income tax expense.

 

The valuation allowance activity for the years ended and is as follows:

 

Year Ended		Balance at Beginning of Year				Income Tax Benefit				Reversal for State NOL Expiration and Utilization				Balance at End of Year
September 30, 2017		$	322,404			$	(32,154	)		$	(131,096	)		$	159,154
September 30, 2016			658,808				(78,044	)			(258,360	)			322,404
September 30, 2015			847,826				(53,836	)			(135,182	)			658,808

Significant components of deferred income tax assets and liabilities are as follows at:

		September 30, 2017				September 30, 2016
Long-term deferred income tax assets (liabilities):
Intangibles		$	(90,085	)		$	(67,450	)
Property and equipment depreciation			(948,653	)			(815,374	)
Net operating loss carry forwards and credits			551,125				702,113
Stock-based compensation			209,645				221,905
Inventories			503,632				388,292
Prepaid expenses			(48,847	)			(44,511	)
Accrued expenses and reserves			404,649				312,227
Goodwill			(866,388	)			(786,577	)
Gross long-term deferred tax liability			(284,922	)			(89,375	)
Valuation allowance			(159,154	)			(322,404	)
Net long-term deferred tax liability		$	(444,076	)		$	(411,779	)

As of and the current income tax receivable was approximately and respectively. Current income tax receivable amounts are included in Other Current Assets in the Company’s balance sheets.

During the quarter ended the Company early adopted ASU - to present balance sheet classification of deferred income taxes as noncurrent. This adoption was applied prospectively and therefore, prior periods were retrospectively adjusted.

 

As of the Company had U.S. federal net operating loss (“NOL”) carry-forwards and approximately state NOLs. The U.S. federal NOL carry forward amounts were fully utilized in fiscal year The state NOL carry forward amounts expire in fiscal years through if utilized. In addition, as of the Company has Minnesota research and development and alternative minimum tax credits of and respectively. The Company has recorded a valuation allowance on these deferred tax assets as the Company believes it is more likely than they will be utilized before they begin to expire in fiscal year

 

The Company completed an Internal Revenue Code Section analysis of the loss carry forwards in and determined then that all of the Company’s loss carry forwards are utilizable and restricted under Section The Company has updated its Section analysis subsequent to and does believe there have been any events subsequent to that would impact the analysis.

 

Under ASU - an entity recognizes all excess tax benefits and tax deficiencies relating to stock-based compensation as income tax expense or benefit in the statement of earnings. This change eliminates the notion of the “APIC” pool and related prior year disclosures for excess tax deductions reflected in the Company’s deferred tax asset presentation.

 

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, 2017				September 30, 2016				September 30, 2015
Federal statutory rate			34	%			34	%			34	%
State income taxes			1	%			1	%			1	%
Permanent differences			(1	%)			-				1	%
Change in valuation allowance			(4	%)			(3	%)			(3	%)
Expiration and utilization of state NOL’s			3	%			2	%			2	%
Research and development credits			(1	%)			(1	%)			-
Excess tax benefits from stock-based     compensation			(1	%)			(7	%)			-
Tax rate			31	%			26	%			35	%

 

Components of the income tax expense are as follows for the years ended:

 

		September 30, 2017				September 30, 2016				September 30, 2015
Current:
Federal		$	1,627,125			$	428,638			$	67,373
State			78,552				106,623				65,820
Current income tax expense			1,705,677				535,261				133,193
Deferred:
Federal			8,680				2,434,294				2,377,590
State			23,617				(93,523	)			(35,545	)
Deferred income tax expense			32,297				2,340,771				2,342,045
Income tax expense		$	1,737,974			$	2,876,032			$	2,475,238

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 sustain the position following an audit. For tax positions meeting the more likely than threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 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 liability for unrecognized tax benefits and did recognize any interest or penalties during the years ended or

 

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 longer subject to U.S. federal, state and local, income tax examinations by tax authorities for fiscal years ending prior to We are generally subject to U.S. federal and state tax examinations for all tax years since due to our net operating loss carryforwards and the utilization of the carryforwards in years still open under statute. The Company changed its fiscal year end in from to