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INCOME TAXES
 12 Months Ended
Sep. 30, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES
8. INCOME TAXES
Provision for Income Taxes
Income before income taxes for the twelve months ended September 30, 2023, 2022, and 2021 is comprised of the following (amounts in thousands):
202320222021
Domestic$23,836 $11,483 $10,966 
Foreign(13,495)(7,881)(2,164)
Total$10,341 $3,602 $8,802 
For the twelve months ended September 30, 2023, 2022, and 2021 the income tax benefit (provision) was as follows (amounts in thousands):
202320222021
Current:
Federal$(4,414)$(233)$— 
State(1,215)(325)(78)
Foreign(1,023)(1,800)(1,119)
Total current provision for income taxes(6,652)(2,358)(1,197)
Deferred:
Federal(659)(1,400)(1,387)
State819 513 457 
Foreign4,178 3,337 1,303 
Total deferred provision for income taxes4,338 2,450 373 
Total tax benefit (expense)$(2,314)$92 $(824)
Deferred Income Tax Assets and Liabilities
Significant components of the Company’s net deferred tax assets and liabilities as of September 30, 2023 and 2022 are as follows (amounts in thousands):
20232022
Deferred tax assets:
Stock-based compensation$2,357 $1,793 
Net operating loss carryforwards11,548 6,656 
Research credit carryforwards4,336 7,747 
Lease liability1,185 859 
Intangibles4,606 — 
Other, net852 1,117 
Total deferred assets24,884 18,172 
Deferred tax liabilities:
Right of use asset(1,032)(633)
Intangibles(15,914)(14,139)
Total deferred liabilities(16,946)(14,772)
Valuation allowance for net deferred tax assets(2,769)(2,868)
Net deferred tax asset$5,169 $532 
The net change in the total valuation allowance for the twelve months ended September 30, 2023 and 2022 was a decrease of $0.1 million and an increase of $2.1 million, respectively. There was no material change in the total valuation allowance during the twelve months ended September 30, 2023. The valuation allowance increased due to foreign losses incurred in the twelve months ended September 30, 2022. 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, 2023, the Company has no available net operating loss carryforwards for federal income tax purposes. The net operating losses for state purposes are $25.2 million, which will begin to expire in 2032. As of September 30, 2023, the Company has no available federal research and development credit carryforwards as the Company fully utilized all federal research and development credits. As of September 30, 2023, the Company has available California research and development credit carryforwards, net of reserves, of $4.4 million, which do not expire. As of September 30, 2023, the Company has available foreign research and development credit carryforwards of $0.8 million, which will begin to expire in 2037.
Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “IRC”) limit the utilization of tax attribute carryforwards that arise prior to certain cumulative changes in a corporation’s ownership. The Company has completed an IRC Section 382/383 analysis through March 31, 2017 and any identified ownership changes had no impact to the utilization of tax attribute carryforwards. Any future ownership changes may have an impact on the utilization of the tax attribute carryforwards.
Earnings from the Company's foreign subsidiaries are considered to be indefinitely reinvested. A distribution of these non-U.S. earnings in the form of dividends or otherwise would subject the Company to foreign withholding taxes and may subject the Company to U.S. federal and state taxes.
Income Tax Provision Reconciliation
The difference between the income tax benefit (provision) and income taxes computed using the U.S. federal income tax rate was as follows for the twelve months ended September 30, 2023, 2022, and 2021 (amounts shown in thousands):
202320222021
Amount computed using statutory rate$(2,172)$(756)$(1,849)
Net change in valuation allowance for net deferred tax assets292 (1,702)(19)
Other(477)1,605 — 
Foreign rate differential504 268 13 
Non-deductible items(14)(64)(141)
Transaction costs— (411)— 
State income tax(100)251 (276)
Research and development credits791 1,166 1,248 
Foreign income tax— — (15)
Contingent consideration(432)285 — 
Uncertain tax positions(184)(318)— 
Stock compensation, net(522)(232)215 
Income tax (provision) benefit$(2,314)$92 $(824)
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, 2023, 2022, and 2021 (amounts shown in thousands):
202320222021
Gross unrecognized tax benefits at the beginning of the year
$2,664 $2,114 $1,810 
Additions from tax positions taken in the current year330 484 268 
Additions from tax positions taken in prior years— 66 36 
Reductions from tax positions taken in prior years(9)— — 
Gross unrecognized tax benefits at end of the year$2,985 $2,664 $2,114 
Of the total unrecognized tax benefits at September 30, 2023, $2.4 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, 2023, 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. To the Company’s knowledge, the Company is not currently under examination by any other taxing authorities.