XML 28 R15.htm IDEA: XBRL DOCUMENT v3.23.2
Income Taxes
 12 Months Ended
Sep. 30, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES
8. INCOME TAXES
Provision for Income Taxes
Income before income taxes for the twelve months ended September 30, 2022, 2021, and 2020 is comprised of the following (amounts in thousands):
202220212020
Domestic$10,619 $10,966 $11,071 
Foreign(7,882)(2,164)(1,662)
Total$2,737 $8,802 $9,409 
For the twelve months ended September 30, 2022, 2021, and 2020 the income tax benefit (provision) was as follows (amounts in thousands):
202220212020
Current:
Federal$(187)$— $— 
State(303)(78)(46)
Foreign(1,799)(1,119)(436)
Total current provision for income taxes(2,289)(1,197)(482)
Deferred:
Federal(1,264)(1,387)(2,182)
State512 457 67 
Foreign3,336 1,303 1,002 
Total deferred provision for income taxes2,584 373 (1,113)
Total tax benefit (expense)$295 $(824)$(1,595)
Deferred Income Tax Assets and Liabilities
Significant components of the Company’s net deferred tax assets and liabilities as of September 30, 2022 and 2021 are as follows (amounts in thousands):
20222021
Deferred tax assets:
Stock-based compensation$1,793 $1,864 
Net operating loss carryforwards6,656 5,669 
Research credit carryforwards7,882 7,322 
Lease liability859 856 
Other, net1,117 — 
Total deferred assets18,307 15,711 
Deferred tax liabilities:
Right of use asset(633)(570)
Intangibles(18,693)(8,019)
Other, net— 1 
Total deferred liabilities(19,326)(8,588)
Valuation allowance for net deferred tax assets(2,868)(729)
Net deferred tax asset (liability)$(3,887)$6,394 
The net change in the total valuation allowance for the twelve months ended September 30, 2022 was an increase of $2.1 million due to losses incurred by certain of the Company’s foreign entities during fiscal 2022. There was no material change in the total valuation allowance during the twelve months ended September 30, 2021. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. The Company considers projected future taxable income and planning strategies in making this assessment. Based on the level of historical operating results and the projections for future taxable income, the Company has
determined that it is more likely than not that the deferred tax assets will be realized with the exception of the net foreign deferred tax assets for certain foreign entities. During the year ended September 30, 2022 the Company completed the HooYu Acquisition, as detailed in Note 3 which increased deferred tax liabilities related to intangible assets.
As of September 30, 2022, the Company has available net operating loss carryforwards of $2.6 million for federal income tax purposes, which can be carried forward indefinitely. The net operating losses for state purposes are $28.8 million, which will begin to expire in 2032. As of September 30, 2022, the Company has available federal research and development credit carryforwards, net of reserves, of $4.1 million. The federal research and development credits will start to expire in 2032. As of September 30, 2022, the Company has available California research and development credit carryforwards, net of reserves, of $3.8 million, which do not expire. As of September 30, 2022, the Company has available foreign research and development credit carryforwards of $0.6 million, which will begin to expire in 2037.
Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “IRC”) limit the utilization of tax attribute carryforwards that arise prior to certain cumulative changes in a corporation’s ownership. The Company has completed an IRC Section 382/383 analysis through March 31, 2017 and any identified ownership changes had no impact to the utilization of tax attribute carryforwards. Any future ownership changes may have an impact on the utilization of the tax attribute carryforwards.
Earnings from the Company's foreign subsidiaries are considered to be indefinitely reinvested. A distribution of these non-U.S. earnings in the form of dividends or otherwise would subject the Company to foreign withholding taxes and may subject the Company to U.S. federal and state taxes.
Income Tax Provision Reconciliation
The difference between the income tax benefit (provision) and income taxes computed using the U.S. federal income tax rate was as follows for the twelve months ended September 30, 2022, 2021, and 2020 (amounts shown in thousands):
202220212020
Amount computed using statutory rate$(575)$(1,849)$(1,977)
Net change in valuation allowance for net deferred tax assets(1,702)(19)221 
Other net deferred tax adjustments1,606 — — 
Foreign rate differential267 13 86 
Non-deductible items(64)(141)(178)
Transaction costs(411)— — 
State income tax273 (276)(205)
Research and development credits1,166 1,248 897 
Foreign income tax— (15)10 
Contingent consideration285 — — 
Uncertain tax positions(318)— — 
Stock compensation, net(232)215 (449)
Income tax provision (expense)/benefit$295 $(824)$(1,595)
Uncertain Tax Positions
In accordance with authoritative guidance, the Company recognizes the benefit of uncertain income tax positions only if those positions are more likely than not of being sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
The following table reconciles the beginning and ending amount of unrecognized tax benefits for the twelve months ended September 30, 2022, 2021, and 2020 (amounts shown in thousands):
202220212020
Gross unrecognized tax benefits at the beginning of the year
$2,114 $1,810 $1,607 
Additions from tax positions taken in the current year484 268 203 
Additions from tax positions taken in prior years66 36 — 
Gross unrecognized tax benefits at end of the year$2,664 $2,114 $1,810 
Of the total unrecognized tax benefits at September 30, 2022, $2.7 million will impact the Company’s effective tax rate. The Company does not anticipate that there will be a substantial change in unrecognized tax benefits within the next twelve months.
The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of September 30, 2022, no accrued interest or penalties related to uncertain tax positions are recorded in the consolidated financial statements.
The Company is subject to income taxation in the U.S. at the federal and state levels. All tax years are subject to examination by U.S., California, and other state tax authorities due to the carryforward of unutilized net operating losses and tax credits. The Company is also subject to foreign income taxes in the countries in which it operates. The examination of the Company’s U.S. federal tax return for the year ended September 30, 2017 was completed during the fourth quarter of fiscal 2020. To the Company’s knowledge, the Company is not currently under examination by any other taxing authorities.
Tax Cuts and Jobs Act
On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act (the “Tax Cuts and Jobs Act"). The Tax Cuts and Jobs Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. federal corporate tax rate from a maximum of 35% to a flat 21%, effective January 1, 2018.
In conjunction with the tax law changes, the Securities and Exchange Commission staff issued Staff Accounting Bulletin 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. In accordance with SAB 118, the Company completed the accounting for the remeasurement of deferred tax assets and liabilities in the twelve months ended September 30, 2020, which included the period of enactment. Additionally, for the twelve months ended September 30, 2020, the entire fiscal year’s activity was under the 21% tax rate.
CARES Act
On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief and Economic Security (CARES) Act” (the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company continues to examine the impacts the CARES Act may have on its business. For the twelve months ended September 30, 2022, the CARES Act has been considered for the income tax provision.