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Note 16 - Income Taxes
 12 Months Ended
Sep. 30, 2024
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

16. Income Taxes

 

The components of the Company’s tax provision (benefit) as of September 30, 2024 and 2023, is as follows: 

 

  

Year Ended September 30,

 
  

2024

  

2023

 

Current:

        

Federal

 $-  $- 

State

  22   6 

Foreign

  -   (37)

Total current

  22   (31)

Deferred:

        

Federal

  -   - 

State

  -   - 

Foreign

  (65)  (63)

Total deferred

  (65)  (63)

Grand total

 $(43) $(94)

 

The Company’s income tax provision was computed using the federal statutory rate and average state statutory rates, net of related federal benefit. The provision differs from the amount computed by applying the statutory federal income tax rate to pretax income, as follows:

 

  

Year Ended September 30,

 
  

2024

  

2023

 
         

Income tax provision/(benefit) at the federal statutory rate of 21%

 $(421) $(1,995)

Permanent differences, net

  36   1,498 

State income tax provision/(benefit)

  17   (30)

Foreign income taxed at different rates

  (118)  91 

Change in valuation allowance on deferred tax assets

  534   260 

True up adjustments

  (91)  82 

Total

 $(43) $(94)

 

As of September 30, 2024, the Company has federal net operating loss (“NOL”) carryforwards of approximately $36.8 million of which $29.0 million is subject to the 20-year carryforward and expire on various dates through 2038. The remaining federal NOL carryforward of $7.7 million is indefinite. Internal Revenue Code Section 382 places a limitation on the amount of taxable income which can be offset by NOL carryforwards after a change in control of a loss corporation. Due to these “change of ownership” provisions, utilization of NOL carryforwards may be subject to an annual limitation on utilization against taxable income in future periods. The Company has not performed a Section 382 analysis. However, if performed, Section 382 may be found to limit potential future utilization of the Company’s NOL carryforwards. The Company also has approximately $50.2 million in state NOLs which expire on various dates through 2044.

 

The Company has deferred tax assets that are available to offset future taxable income. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax assets will not be realized. Management believes that it is more likely than not that all deferred tax assets will not be realized. Accordingly, the Company has established a valuation allowance against a portion of its deferred tax assets at September 30, 2024 and 2023. For the years ended September 30, 2024 and 2023, the valuation allowance for deferred tax assets increased by $0.5 million and $0.3 million, respectively.

 

The acquisition of HawkSearch during the third quarter of fiscal 2021 resulted in the recognition of deferred tax liabilities of approximately $1.2 million related to intangible assets. Prior to the business combination, the Company had a full valuation allowance on its net deferred tax assets. The deferred tax liabilities generated from the business combination netted against the Company’s pre-existing deferred tax assets. Consequently, the impact of such resulted in the release of $1.2 million of the pre-existing valuation allowance against the deferred tax assets and corresponding deferred tax benefit recognized during fiscal 2021.

 

We recognize deferred tax assets for stock-based awards that result in deductions on our income tax returns, based on the amount of stock-based compensation recognized and the statutory tax rate in the jurisdiction in which we will receive a tax deduction. We also recognize interest accrued related to unrecognized tax benefits in interest expense. Penalties, if incurred, are recognized as a component of tax expense.

 

The Company is subject to U.S. federal income tax as well as income tax of certain state jurisdictions. The Company has not been audited by the Internal Revenue Service (“IRS”) or any states in connection with income taxes. The tax periods from 2021 to 2024 generally remain open to examination by the IRS and state authorities.

 

Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

  

September 30,

 
  

2024

  

2023

 

Deferred tax assets:

        

Bad debt reserve

 $66  $46 

Accrued expenses

  139   78 

Net operating loss carryforwards

  10,699   10,627 

Right of use liability

  97   248 

Stock options

  498   379 

Other

  17   17 

Total deferred tax assets

  11,516   11,395 

Valuation allowance

  (11,336)  (10,802)

Net deferred tax assets

  180   593 
         

Deferred tax liabilities:

        

Right of use asset

  97   248 

Depreciation

  7   47 

Intangibles

  251   525 

Total deferred tax liabilities

  355   820 

Net deferred tax liabilities

 $(175) $(227)

 

Net deferred tax assets are reflected in Other assets and net deferred tax liabilities are reflected in Other long-term liabilities on the consolidated balance sheets. There were no undistributed earnings of the Company’s foreign subsidiaries at September 30, 2024 and 2023. The 2017 Tax Act subjects a U.S. stockholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, provides that an entity may make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years, or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Additionally, the 2017 Tax Act provides for a tax benefit to U.S. taxpayers that sell goods or services to foreign customers under the new Foreign Derived Intangible Income Deduction (“FDII”) rules. As of September 30, 2024 and  September 30, 2023, the Company did not have GILTI to be reported. When accounting for uncertain income tax positions, the impact of uncertain tax positions is recognized in the consolidated financial statements if they are more likely than not of being sustained upon examination, based on the technical merits of the position. The Company’s management has determined that the Company has no uncertain tax positions requiring recognition as of September 30, 2024 and 2023. The Company does not expect any change to this determination in the next twelve months.