Annual report pursuant to Section 13 and 15(d)

14. Income Taxes

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14. Income Taxes
12 Months Ended
Sep. 30, 2016
Income Tax Disclosure [Abstract]  
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, 2016 and 2015 is as follows:

 

    2016     2015  
Current expense:                
Federal   $     $ 320,000  
State     31,161       56,000  
      31,161       376,000  
Deferred expense:                
Federal     (12,524,582 )      
State            
             
Total income tax expense   $ (12,493,221 )   $ 376,000  

 

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

 

    2016     2015  
    Amount     Percent     Amount     Percent  
                         
Federal statutory rates   $ 1,830,150       34%     $ (4,874,337 )     34%  
State income taxes     161,484       3%       (123,292 )     1%  
Permanent differences     (852,646 )     -16%       2,794,987       -19%  
Net operating loss adjustment     (1,083,866 )     -20%       327,477       -2%  
Valuation allowance against net deferred tax assets     (12,284,278 )     -228%       2,251,165       -16%  
Other     (264,065 )     -5%             0%  
Effective rate   $ (12,493,221 )     -227%     $ 376,000       -3%  

 

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

 

    2016     2015  
Deferred income tax asset, current:                
Book to tax differences in accounts receivable   $ 406,733     $ 374,621  
Book to tax differences in prepaid expenses           65,467  
Book to tax difference in accrued expenses     241,536       144,961  
Book to tax differences in inventory     414,575        
Total deferred income tax asset, current     1,062,844       585,049  
Less: valuation allowance           (585,049 )
Deferred income tax asset, current, net     1,062,844        
                 
Deferred income tax asset, long-term:                
Net operation loss carryforwards     9,915,371       10,801,243  
Book to tax differences in intangible assets     633,869       632,557  
Book to tax differences in organizational costs     160,586       272,239  
Book to tax differences in depreciation     751,912       (6,810 )
Total deferred income tax asset, long-term     11,461,738       11,669,229  
Less: valuation allowance           (11,669,229 )
Deferred income tax asset, net     11,461,738        
                 
Total deferred income tax asset   $ 12,524,582     $  

 

The Company has recorded as of September 30, 2016 and 2015 a valuation allowance of $0 and $12,284,278, respectively. We reduced our valuation allowance by $12,284,278 based on the profitable operations of our Marquis subsidiary that can be offset against our net operation loss carryforwards.

 

The Company annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of September 30, 2016.

 

The Company has net operating loss carry-forwards of approximately $35.5 million. Such amounts are subject to IRS code section 382 limitations and expire in 2027. The 2011 to 2014 tax years are still subject to audit.