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13. INCOME TAXES
 12 Months Ended
Sep. 30, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES

13. 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, the Company has calculated its 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, 2024, 2023 and 2022 the Company's loss from continuing operations before provision for income taxes were as follows:

 

 

 

For the year ended September 30,

 

($ in thousands)

 

2024

 

 

2023

 

 

2022

 

Domestic

 

$

(142,433

)

 

$

(131,303

)

 

$

(40,089

)

Foreign

 

 

—

 

 

 

—

 

 

 

—

 

Loss before income taxes

 

$

(142,433

)

 

$

(131,303

)

 

$

(40,089

)

The components of the provision for income taxes in the years ended September 30, 2024, 2023 and 2022 were as follows:

 

 

 

For the year ended September 30,

 

($ in thousands)

 

2024

 

 

2023

 

 

2022

 

Current:

 

 

 

 

 

 

 

 

 

     Federal

 

$

—

 

 

$

—

 

 

$

—

 

     State

 

 

—

 

 

 

—

 

 

 

—

 

Deferred:

 

 

 

 

 

 

 

 

 

     Federal

 

$

3,344

 

 

$

2,416

 

 

$

—

 

     State

 

 

—

 

 

 

—

 

 

 

—

 

Provision for income taxes

 

$

3,344

 

 

$

2,416

 

 

$

—

 

The effective income tax rate for the periods ended September 30, 2024, 2023 and 2022 as a percentage of pre-tax income is (2.3%), (1.8%) and 0%, respectively. The significant reconciling items between the effective tax rate and the statutory tax rate for the periods ended September 30, 2024, 2023 and 2022 consist of valuation allowance, adjustments to deferred taxes, state taxes, and permanent items. A detailed breakout is provided below:

 

 

 

For the year ended September 30,

 

($ in thousands)

 

2024

 

 

2023

 

 

2022

 

Tax benefit at federal statutory rate

 

$

(29,911

)

 

$

(27,574

)

 

$

(8,417

)

State taxes (net of federal benefit)

 

 

(3,075

)

 

 

5,820

 

 

 

(303

)

162(m) Excess Executive Compensation

 

 

9,806

 

 

 

6,823

 

 

 

—

 

Stock Option (Windfall)/Shortfall

 

 

(2,314

)

 

 

—

 

 

 

—

 

Return to Provision Adjustments

 

 

2,301

 

 

 

29

 

 

 

—

 

Deferred Only Adjustments

 

 

15,445

 

 

 

745

 

 

 

4,408

 

Discontinued Operations

 

 

—

 

 

 

—

 

 

 

(3,750

)

Change in Valuation Allowance

 

 

10,299

 

 

 

15,871

 

 

 

6,232

 

Other

 

 

793

 

 

 

702

 

 

 

1,830

 

 

 

$

3,344

 

 

$

2,416

 

 

$

—

 

 

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 tax attributes such at 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, 2024 and 2023 were as follows:

 

($ in thousands)

 

September 30, 2024

 

 

September 30, 2023

 

Deferred Tax Assets:

 

 

 

 

 

 

     Right of Use - Lease Liability

 

$

340

 

 

$

(140

)

     Charitable Contributions

 

 

98

 

 

 

64

 

     Tax Credits

 

 

200

 

 

 

200

 

     Stock Based Compensation

 

 

113

 

 

 

281

 

     Interest Expense Carryforwards

 

 

—

 

 

 

652

 

     Intangible Assets

 

 

2,926

 

 

 

3,784

 

     Net Operating Loss carryforwards

 

 

77,788

 

 

 

56,708

 

     Other

 

 

1,134

 

 

 

4,085

 

     Gross Deferred Tax Assets

 

$

82,599

 

 

$

65,634

 

Valuation Allowance

 

 

(54,926

)

 

 

(44,627

)

Total deferred tax assets, net of valuation allowance

 

$

27,673

 

 

$

21,007

 

 

 

 

 

 

 

 

Deferred Tax Liabilities

 

 

 

 

 

 

     Right of Use - Lease Asset

 

$

(691

)

 

$

138

 

     Prepaid Expenses

 

 

(927

)

 

 

(636

)

     Change in Fair Value of Digital Currency

 

 

(22,706

)

 

 

—

 

     Other

 

 

(1,070

)

 

 

(1,451

)

     Fixed Assets & Intangible Assets

 

 

(8,040

)

 

 

(21,474

)

Gross Deferred Tax Liabilities

 

$

(33,434

)

 

$

(23,423

)

Net Deferred Tax Liabilities

 

$

(5,761

)

 

$

(2,416

)

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, 2024

 

 

September 30, 2023

 

 

 

 

 

 

 

 

Net Non-current Deferred Tax Liabilities

 

$

(5,761

)

 

$

(2,416

)

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, 2024 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, 2024 and September 30, 2023.

 

 

 

As of September 30,

 

 

 

2024

 

 

2023

 

 

 

 

 

 

 

 

Valuation Allowance

 

$

(54,926

)

 

$

(44,627

)

 

 

 

 

 

 

 

 

As of September 30, 2024, the Company had $332,586 of federal and $146,973 of state net operating loss carryforwards available to reduce future taxable income, of which federal net operating loss carryforwards of $325,943 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 Section 382 ("Section 382") or comparable provisions of state law. Tax attributes that exceed the Section 382 limitation in any year continue to be allowed as carryforwards until they expire and can be used to offset taxable income for years within the carryover period subject to the limitation in each year. Given the Company’s significant U.S. tax attributes, we continuously monitor potential ownership changes under Section 382. During the year, the Company completed a detailed study and determined an ownership change (as defined under Section 382) occurred during the third quarter of 2020, fourth quarter of 2020, and second quarter of 2023, triggering the application of Section 382. We do not currently expect any resulting Section 382 limitations on the use of our tax attributes to have a significant impact on our 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 applicable. The Company has no liability, interest or penalties for unrecognized tax benefits as of September 30, 2024. 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 2020-2023 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.