10. INCOME TAXES
Income before taxes and the benefit from income taxes for the years ended September 30, 2017 and 2016 consisted of the following (in thousands):
|
|
|
Year Ended September 30, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Income before income taxes |
|
$ |
3,249 |
|
|
$ |
4,710 |
|
|
Provision for (benefit from) income taxes: |
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
Federal |
|
|
(120 |
) |
|
|
(136 |
) |
|
State |
|
|
178 |
|
|
|
671 |
|
|
Total current provision for income taxes |
|
|
58 |
|
|
|
535 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
Federal |
|
|
(12,263 |
) |
|
|
(6,331 |
) |
|
State |
|
|
(219 |
) |
|
|
(419 |
) |
|
Total deferred benefit from income taxes |
|
|
(12,482 |
) |
|
|
(6,750 |
) |
|
Total benefit from income taxes |
|
$ |
(12,424 |
) |
|
$ |
(6,215 |
) |
|
Effective tax rate |
|
|
(382.39 |
)% |
|
|
(131.95 |
)% |
The difference between the tax provision at the statutory federal income tax rate and the benefit from income tax as a percentage of income before income taxes (effective tax rate) for the years ended September 30, 2017 and 2016 was as follows:
|
|
|
Year Ended September 30, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Statutory federal income tax rate |
|
|
35.00 |
% |
|
|
35.00 |
% |
|
Increase (reduction) in rate resulting from: |
|
|
|
|
|
|
|
|
|
State tax, net of federal benefit |
|
|
16.18 |
|
|
|
14.66 |
|
|
Permanent differences |
|
|
(6.80 |
) |
|
|
2.77 |
|
|
Change in valuation allowance and other |
|
|
(426.77 |
) |
|
|
(184.38 |
) |
|
Effective tax rate |
|
|
(382.39 |
)% |
|
|
(131.95 |
)% |
Significant components of the Company’s deferred tax assets and liabilities as of September 30, 2017 and 2016 were as follows (in thousands):
|
|
|
Year Ended September 30, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforward |
|
$ |
53,996 |
|
|
$ |
55,759 |
|
|
Accrued expenses and other |
|
|
2,475 |
|
|
|
2,166 |
|
|
Other (WOTC and AMT credit carryforward) |
|
|
1,956 |
|
|
|
2,371 |
|
|
Deferred revenue |
|
|
1,463 |
|
|
|
65 |
|
|
Allowance for doubtful accounts |
|
|
326 |
|
|
|
440 |
|
|
Gross deferred tax assets |
|
|
60,216 |
|
|
|
60,801 |
|
|
Less: valuation allowance |
|
|
(30,691 |
) |
|
|
(42,447 |
) |
|
Net deferred tax assets |
|
|
29,525 |
|
|
|
18,354 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
(10,375 |
) |
|
|
(11,517 |
) |
|
Land and depreciable assets |
|
|
(7,221 |
) |
|
|
(7,314 |
) |
|
Prepaid expenses |
|
|
(877 |
) |
|
|
(953 |
) |
|
Total deferred tax liabilities |
|
|
(18,473 |
) |
|
|
(19,784 |
) |
|
Net deferred tax assets (liabilities) |
|
$ |
11,052 |
|
|
$ |
(1,430 |
) |
Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
The Company files income tax returns in the U.S. federal jurisdiction and various states. The years still open to audit under the applicable statutes of limitations are June 30, 2015, through June 30, 2017, for federal and June 30, 2014, through June 30, 2017, for state. Tax years ending June 30, 2002 through June 30, 2009 generated a net operating loss carry forward and remain subject to examination. The amount of any tax assessments and penalties may be material and may negatively impact the Company’s operations. Given the uncertainty in the amount and the difficulty in estimating the probability of the assessments arising from future tax examinations, the Company has not made any accruals for such tax contingencies. No tax returns are currently under examination by any tax authorities.
As of September 30, 2017, the Company’s deferred tax assets were primarily the result of U.S. net operating losses carryforwards. As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets. As of September 30, 2017, management determined that sufficient positive evidence, which includes consistent profitability over the past three years and continued taxable income projection, exists as of September 30, 2017, to conclude that it is more likely than not that additional deferred tax assets are realizable and, therefore, reduced the valuation allowance by $11.8 million to $30.7 million at September 30, 2017 from $42.4 million at September 30, 2016.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. At September 30, 2017 and 2016, the Company does not have a liability for uncertain tax positions. The Company does not anticipate that there will be a material change of unrecognized tax benefits within the next 12 months.
At September 30, 2017, the Company has net operating loss carryforwards for federal income tax purposes of approximately $154.3 million that begin expiring in 2022. In addition, the use of this net operating loss in future years may be restricted under Section 382 of the Internal Revenue Code due to a potential change of ownership.