Note 16 - Income Taxes

12 Months Ended

Sep. 30, 2024

Notes to Financial Statements

Income Tax Disclosure [Text Block]

16. Income Taxes:

Components of income (loss) before income taxes were as follows (in thousands):

	YEAR ENDED SEPTEMBER 30,
	2024			2023
United States	$	(6,930	)	$	11,190
Foreign		466			1,379
	$	(6,464	)	$	12,569

The provision for income taxes consisted of the following (in thousands):

	YEAR ENDED SEPTEMBER 30,
	2024		2023
Current
Federal	$	—	$	63
Foreign		55		244
State		41		59
		96		366
Deferred:
Federal		—		—
Foreign		18		(3	)
		18		(3	)
	$	114	$	363

The difference between the effective tax rate reflected in the provision for income taxes and the U.S. federal statutory rate were as follows (in thousands):

	YEAR ENDED SEPTEMBER 30, 2024						YEAR ENDED SEPTEMBER 30, 2023
	Amount			Percent			Amount			Percent
Expense (benefit) for U.S. federal income tax at statutory rate	$	(1,357	)		21.0	%	$	2,639			21.0	%
Research and experimentation tax credit		(572	)		8.8	%		(480	)		(3.9	)%
State income taxes, net of federal income tax benefit		32			(0.5	)%		302			2.5	%
Change in valuation allowance		1,934			(29.9	)%		(2,459	)		(19.6	)%
Foreign earnings tax		125			(1.9	)%		—			—
Stock compensation		(210	)		3.2	%		171			1.4	%
Impact due to foreign currency translation		(44	)		0.7	%		51			0.4	%
Other items		206			(3.2	)%		139			1.1	%
Total tax expense and effective tax rate	$	114			(1.8	)%	$	363			2.9	%

The income tax expense for fiscal years 2024 and 2023 primarily reflects tax accrual for U.S. state and Russian income tax.  The Company maintains a full valuation allowance against deferred tax assets resulting from net operating loss ("NOL") carry-fowards in the United States and Canada due to the uncertainty surrounding its ability to utilize such losses in the future to offset taxable income.

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. Significant components of the Company’s net deferred income tax assets (liabilities) were as follows (in thousands):

	YEAR ENDED SEPTEMBER 30,
	2024			2023
Deferred income tax assets:
Inventories	$	5,447		$	8,269
Loss and tax credit carryforwards		31,850			29,581
Accrued compensation		733			870
R&D expenditure capitalization		3,064			1,538
Intangible assets		290			—
Property and equipment		331			504
Other reserves		456			590
Subtotal deferred income tax assets		42,171			41,352
Valuation allowance		(40,851	)		(38,917	)
Net deferred income tax assets		1,320			2,435
Deferred income tax liabilities:
Intangible assets		—			(292	)
Property and equipment		(1,249	)		(2,153	)
Other		(105	)		(6	)
Total deferred income tax liabilities		(1,354	)		(2,451	)
Net deferred income tax liabilities	$	(34	)	$	(16	)

The financial reporting basis of investments in foreign subsidiaries exceed their tax basis. A deferred tax liability is not recorded for this temporary difference because the investment is deemed to be permanent. A reversal of the Company’s plans to permanently invest in these foreign operations would cause the excess to become taxable. At September 30, 2024, the Company had $1.1 million of cash and cash equivalents held by its foreign subsidiaries. At September 30, 2024 and 2023, the temporary difference related to undistributed earnings for which no deferred taxes have been provided was approximately $1.2 million and $8.2 million, respectively.

The Company is subject to taxation in the United States as well as various states and foreign jurisdictions. Tax years that remain subject to examination by significant tax jurisdictions are the United States for tax years ending after 2016, the United Kingdom for tax years ending after 2022, and Canada for tax years ending after 2019.

At of September 30, 2024, the Company had NOL carry-forwards of approximately $85.6 million in the United States and $19.2 million in Canada which are available to offset future taxable income in those jurisdictions. The NOL carry-forward for Canada will begin to expire in 2033. The NOL carry-forward for the United States which originated prior to the 2017 Tax Act of $32.4 million begins to expire in 2029 and those originating after the 2017 Tax Act of $53.2 million do not expire.

Management of the Company has concluded that it was not more-likely-than-not that its U.S., Canadian and Russian net deferred tax assets will be realized in accordance with U.S. GAAP. On  September 30, 2024 and September 30, 2023, the Company had a valuation allowance against its U.S. net deferred tax assets of $36.1 million and $33.7 million, respectively. At September 30, 2024 and September 30, 2023, the Company had a valuation allowance against its Canadian net deferred tax assets of $4.8 million and $4.8 million, respectively. At September 30, 2023, the Company had a valuation allowance against its Russian net deferred tax assets of $0.4 million.