Note 6 - Income Taxes

12 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

6. Income Taxes

Provision for income taxes consists of the following (in thousands):

	Years Ended September 30,
	2022			2021
Current income tax expense U.S.	$	—		$	—
Current income tax expense foreign		(7	)		20
Deferred income tax (benefit)		(228	)		(5	)
Provision for income taxes	$	(235	)	$	15

U.S. and foreign components of income (loss) before income taxes were as follows (in thousands):

	Years Ended September 30,
	2022			2021
U.S.	$	(3,115	)	$	2,702
Foreign		(4,203	)		390
Income (Loss) before income taxes	$	(7,318	)	$	3,092

The reconciliation of income tax expense (benefit) computed at the appropriate country specific rate to income tax benefit is as follows (in thousands):

	Years Ended September 30,
	2022			2021
Income tax expense (benefit) at statutory rate	$	(1,537	)	$	649
State income tax expense		14			9
Foreign rate differential		(593	)		(31	)
PPP loan forgiveness		—			(488	)
Permanent differences, net		425			67
Expiration of net operating losses		3,129			3,945
Change in valuation allowance		(1,894	)		(4,255	)
Return to provision true-up		(13	)		166
Other		234			(47	)
Income tax (benefit) expense	$	(235	)	$	15

The significant components of the deferred tax accounts recognized for financial reporting purposes are as follows (in thousands):

	September 30,
	2022			2021
Deferred tax assets:
Net operating loss and other carryforwards	$	15,189		$	16,893
Common stock options		1,038			1,003
Unearned revenue		271			343
Interest expense limitation		29			10
Lease liability		442			575
Other		310			330
Total deferred tax assets		17,279			19,154
Deferred tax liabilities:
ROU - Asset		(431	)		(570	)
Other		(252	)		(321	)
Total deferred tax liabilities		(683	)		(891	)
Net deferred tax asset		16,596			18,263
Valuation allowance		(16,321	)		(18,215	)
Net deferred tax asset	$	275		$	48

The Company has a $275 thousand and $48 thousand deferred tax asset at September 30, 2022 and 2021, respectively, recorded within deferred tax asset on the consolidated balance sheet and is primarily related to net operating losses of MSKK.

At September 30, 2022, the Company had net operating loss carryforwards of approximately $50 million for U.S. Federal and $62 million for state tax purposes. For Federal tax purposes, the carryforwards have a range of lives from 20 years to indefinite and begin expiring in 2022 and those with 20 year lives will continue to expire through 2037. Approximately $10 million of the federal NOLs are indefinite lived. For state tax purposes, the carryforwards expire in varying amounts between 2022 and 2042. Utilization of the Company’s net operating loss carry forwards may be subject to substantial annual expirations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Approximately $14.3 million and $18.8 million of federal net operating loss carryforwards expired during for the years ended September 30, 2022 and ended September 30, 2021, respectively.

The Company maintains an additional paid-in-capital (APIC) pool which represents the excess tax benefits related to share-based compensation that are available to absorb future tax deficiencies. If the amount of future tax deficiencies is greater than the available APIC pool, the Company records the excess as income tax expense in its consolidated statements of income. For fiscal 2022 and fiscal 2021, the Company had a sufficient APIC pool to cover any tax deficiencies recorded and as a result, these deficiencies did not affect its results of operations. At September 30, 2022, the Company has $1.1 million of net operating loss carry forwards for which a benefit would be recorded in APIC when realized.

Earnings of the Company’s foreign subsidiaries are generally subject to U.S. taxation upon repatriation to the U.S. and the Company’s tax provision reflects the related incremental U.S. tax except for certain foreign subsidiaries whose unremitted earnings are considered to be indefinitely reinvested. No deferred tax liability has been recognized with regard to the remittance of such earnings after MSKK and Sonic Foundry International BV acquisitions were completed. At September 30, 2022, there were no unremitted earnings for foreign subsidiaries deemed to be indefinitely reinvested.

In accordance with accounting guidance for uncertainty in income taxes, the Company has concluded that a reserve for income tax contingencies is not necessary. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accruals for interest and penalties on the Company’s Consolidated Balance Sheets at September 30, 2022 or September 30, 2021 and has not recognized any interest or penalties in the Consolidated Statements of Operations for either of the years ended September 30, 2022 or 2021.

The Company is subject to taxation in the U.S., Netherlands, Japan and various state jurisdictions. All of the Company’s tax years are subject to examination by the U.S., Dutch, Japanese and state tax authorities due to the carryforward of unutilized net operating losses.