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11. INCOME TAXES
 12 Months Ended
Sep. 30, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES

11. INCOME TAXES

The Company provides for income taxes under FASB ASC 740, Accounting for Income Taxes. FASB ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently.

FASB ASC 740 requires the reduction of deferred tax assets by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a valuation allowance has been recorded.

Due to the enactment of the Tax Reform Act of 2017, we have calculated our federal taxes using an estimated corporate tax rate of 21%. U.S. Tax codes and laws may be subject to further reform or adjustment which may have a material impact to the Company’s deferred tax assets and liabilities.

For the years ended September 30, 2023 and 2022 the Company's loss from continuing operations before provision for income taxes were as follows:

 

($ in thousands)

 

September 30, 2023

 

 

September 30, 2022

 

Domestic

 

$

(131,303

)

 

$

(40,089

)

Foreign

 

 

—

 

 

 

—

 

Loss before income taxes

 

$

(131,303

)

 

$

(40,089

)

The components of the provision for income taxes in the years ended September 30, 2023 and 2022 were as follows:

 

($ in thousands)

 

September 30, 2023

 

 

September 30, 2022

 

Current:

 

 

 

 

 

 

     Federal

 

$

—

 

 

$

—

 

     State

 

 

—

 

 

 

—

 

Deferred:

 

 

 

 

 

 

     Federal

 

$

857

 

 

$

—

 

     State

 

 

—

 

 

 

—

 

Provision for income taxes

 

$

857

 

 

$

—

 

The effective income tax rate for the periods ended September 30, 2023 and 2022 as a percentage of pre-tax income is (0.65%) and 0%, respectively. The significant reconciling items between the effective tax rate and the statutory tax rate for the period ended September 30, 2023 consist of valuation allowance, adjustments to deferred taxes, state taxes and permanent items. A detailed breakout is provided below:

 

($ in thousands)

 

September 30, 2023

 

 

September 30, 2022

 

Tax benefit at federal statutory rate

 

$

(27,574

)

 

$

(8,417

)

State taxes (net of federal benefit)

 

 

5,820

 

 

 

(303

)

Meals and entertainment

 

 

18

 

 

 

30

 

Stock based compensation

 

 

356

 

 

 

2,061

 

162(m) Excess Executive Compensation

 

 

6,823

 

 

 

—

 

ISO - Disqualifying Dispositions

 

 

(127

)

 

 

(58

)

Deferred only adjustment

 

 

(13,794

)

 

 

4,408

 

R&D Credits

 

 

—

 

 

 

(200

)

Discontinued Operations

 

 

—

 

 

 

(3,750

)

Other

 

 

485

 

 

 

(3

)

Change in Valuation Allowance

 

 

28,850

 

 

 

6,232

 

 

 

$

857

 

 

$

—

 

Deferred income taxes are the result of timing differences between GAAP accounting and tax basis of certain assets and liabilities, timing of income and expense recognition of certain items, and net operating loss carry-forwards. These differences result in deferred tax assets and liabilities, which are recorded in the balance sheet, net of valuation allowance. The Company evaluates the realizability of its deferred tax assets and assesses the need for a valuation allowance on an ongoing basis. In evaluating its deferred tax assets, the Company considers whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of deferred tax assets depends upon generating sufficient future taxable income prior to the expiration of the tax attributes. This assessment requires significant judgment.

The significant components of the Company's deferred tax assets and liabilities as of September 30, 2023 and 2022 were as follows:

 

($ in thousands)

 

September 30, 2023

 

 

September 30, 2022

 

Deferred Tax Assets:

 

 

 

 

 

 

     Right of Use - Lease Liability

 

$

183

 

 

$

269

 

     Charitable Contributions

 

 

64

 

 

 

7

 

     Section 1231 Loss Carryforwards

 

 

983

 

 

 

1,183

 

     Tax Credits

 

 

200

 

 

 

401

 

     Stock Based Compensation

 

 

4,512

 

 

 

3,740

 

     Interest Expense Carryforwards

 

 

653

 

 

 

194

 

     Intangible Assets

 

 

6,999

 

 

 

—

 

     Net Operating Loss carryforwards

 

 

66,333

 

 

 

93,052

 

     Other

 

 

2,078

 

 

 

—

 

     Gross Deferred Tax Assets

 

$

82,005

 

 

$

98,846

 

Valuation Allowance

 

 

(54,608

)

 

 

(28,756

)

Total deferred tax assets, net of valuation allowance

 

$

27,397

 

 

$

70,090

 

 

 

 

 

 

 

 

Deferred Tax Liabilities

 

 

 

 

 

 

     Right of Use - Lease Asset

 

$

(180

)

 

$

(265

)

     Prepaid Expenses

 

 

(636

)

 

 

(222

)

     Unrealized Gain on Derivative Asset

 

 

—

 

 

 

(85

)

     Unrealized Gain on Equity Security

 

 

—

 

 

 

(63

)

     Gain/Loss on Sale of Assets not on TR

 

 

—

 

 

 

(26

)

     Other

 

 

(898

)

 

 

—

 

     Fixed Assets & Intangible Assets

 

 

(26,540

)

 

 

(69,429

)

Net Deferred Tax Liability

 

$

(857

)

 

$

—

 

For balance sheet presentation, the Company nets non-current deferred tax assets (net of valuation allowance) and liabilities. The following table summarizes the presentation:

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

 

 

 

 

 

Net Non-current Deferred Tax Liabilities

 

$

(857

)

 

$

—

 

In accordance with ASC 740, Accounting for Income Taxes, the Company evaluates its deferred income taxes to determine if valuation allowances are required. Pursuant to U.S. income tax accounting standards, companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence using a “more-likely-than-not” standard. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. The Company considers the scheduled reversal of deferred tax liabilities. To fully utilize the net operating loss (“NOL”) carryforward, the Company will need to generate sufficient future taxable income in each respective jurisdiction. Due primarily to the Company’s history of losses, it is more likely than not that all or a portion of its deferred tax assets as of September 30, 2023 will not be realized.

The Company recorded a valuation allowance to offset the DTA that is not considered realizable for the tax year ended September 30, 2023 and September 30, 2022.

 

 

 

As of September 30,

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

Valuation Allowance

 

$

(54,608

)

 

$

(28,756

)

 

 

 

 

 

 

 

 

As of September 30, 2023, the Company had approximately $270,400 of federal and $96,400 of state net operating loss carryforwards available to reduce future taxable income, of which federal net operating loss carryforwards of approximately $237,700 have an indefinite life. The federal net operating losses will begin to expire on September 30, 2025, while state net operating losses will begin to expire in the year ending September 30, 2036.

The Company's ability to utilize its federal and state net operating loss carryforwards and federal tax credit carryforwards to reduce future taxable income and future taxes, respectively, may be subject to restrictions attributable to equity transactions that may have resulted in a change in ownership as defined by Internal Revenue Code ("IRC") Section 382. The Company is in the process of completing a detailed study for the year ended September 30, 2023, but does not expect that the results of this study will have a material impact on its financial statements.

The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than a 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

The Company records interest and penalties related to unrecognized tax benefits in income tax expense, if any exist. The Company has no liability, interest or penalties for unrecognized tax benefits as of September 30, 2023. The Company does not anticipate the need to record a liability for unrecognized tax benefits within the coming year.

The Company files income tax returns in the U.S. federal and state jurisdictions. The 2019-2022 tax years generally remain subject to examination by the IRS and various state taxing authorities, although the Company is not currently under examination in any jurisdiction.

In August 2022, two pieces of U.S. tax legislation that have significant tax-related provisions were signed into law: (1) the Creating Helpful Incentives to Produce Semiconductors Act of 2022 (the “CHIPS Act”), which creates a new advanced manufacturing investment credit under new Internal Revenue Code Section 48D, and (2) the Inflation Reduction Act of 2022 (the “IRA”), which has a number of tax-related provisions, including: (a) a 15 percent book minimum tax on “adjusted financial statement income of applicable corporations,” (b) a plethora of clean energy tax incentives in the form of tax credits, and (c) a one percent excise tax on certain corporate stock buybacks. The Company will monitor additional guidance and impact that the CHIPS Act, the IRA and other potential legislation may have on its income taxes. For the period ended September 30, 2023, the Company does not believe the provisions from these legislative updates will have any material impact on the Company's income taxes.