Income Taxes

3 Months Ended

Jun. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Note 11. Income Taxes

The provision for income taxes (income tax benefits) consists of the following for the three months ended June 30, 2024:

	(In thousands)
	Three Months Ended June 30,
	2024			2023
Current:
U.S. federal	$	-		$	144
State & local		-			1
Total current	$	-		$	145
Deferred:
U.S. federal	$	(128	)	$	-
State & local		-			-
Total deferred	$	(128	)	$	-
Total tax provision	$	(128	)	$	145

The provision (benefit) for income taxes reflects an effective U.S. tax rate, which differs from the corporate tax rate for the following reasons:

	(In thousands)
	Three Months Ended June 30,
	2024			Percentage			2023			Percentage
U.S. federal tax expense at the statutory rate	$	(757	)		21.00	%	$	360			21.00	%
Increase (decrease) in income taxes resulting from:
State tax, net of federal benefit		(51	)		1.43	%		(48	)		-2.82	%
Change in valuation allowance		502			-13.93	%		(464	)		-27.02	%
Transaction costs		225			-6.24	%		-			0.00	%
Impact of other permanent differences		(2	)		0.06	%		-			0.00	%
Other		(45	)		1.24	%		297			17.28	%
	$	(128	)		3.56	%	$	145			8.44	%

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 are reflected in deferred income taxes. Significant components of the Company's deferred tax assets consist of the following:

	(In thousands)
	June 30, 2024			March 31, 2024
Allowance for credit losses	$	-		$	33
Unrealized fair value adjustment		-			4,130
Share based compensation		55			30
Federal and state net operating losses		15,836			9,816
Right of use liability		119			15
Other		9			49
		16,019			14,073
Valuation allowance		(14,549	)		(14,047	)
Gross deferred tax assets		1,470			26
Right of use assets		(118	)		(15	)
Fixed assets		(3,743	)		-
Intangible assets		(2,185	)		-
Other		(51	)		(11	)
Gross deferred tax liabilities		(6,097	)		(26	)
Net deferred tax liabilities	$	(4,627	)	$	-

The Company recorded an income tax benefit of approximately $128 thousand and an income tax expense from discontinued operations of $145 thousand during the three months ended June 30, 2024 and 2023, respectively. The tax benefit is primarily related to recording the net operating losses of the newly acquired entity Amplex. Amplex was acquired during the current period and will be consolidated for GAAP purposes, while continuing to file a separate federal tax return.

As of fiscal year 2024, the Company had a federal and state net operating losses ("NOL") of approximately $44.6 million and $59.4 million, respectively. During the three months ended June 30, 2024, the Company generated federal and state NOLs of $20.1 million and $15.7 million, respectively. The total NOL carryforwards as of June 30, 2024, is $139.8 million that may be available to offset future taxable income. The federal NOLs generated for the three months ended June 30, 2024, will carryforward indefinitely. Generally, state NOLs begin to expire June 30, 2039. In accordance with Section 382 of the U.S. Internal Revenue Code, the usage of the Company's NOL carryforwards is subject to annual limitations following greater than 50% ownership changes. Tax returns for the years ended 2021 through 2024 are subject to review by tax authorities.

The Company’s effective tax rate for the first quarter of 2024 was 3.56%, consistent with the rate for the corresponding period in the prior year. The reduction from the federal statutory rate in the first quarter of 2024 is primarily due to an increase in valuation allowance. The Company records a valuation allowance when there is not sufficient evidence of future earnings to support a position that it will be able to realize its net deferred tax asset.

As a result of the sale of finance receivables and repossessed assets to Westlake Financial, the Company also reported discontinued operations for the historical Nicholas Financial entity.