Note 13 - Income Taxes

12 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

13. INCOME TAXES

Income taxes consisted of the following:

	Years ended September 30,
	2023		2022
Current tax provision
Federal	$	-	$	-
State		16		3
Foreign		11		70
Total current tax provision		27		73
Deferred provision
Federal		6,266		568
State		1,107		100
Total deferred provision		7,373		668
Provision for income taxes	$	7,400	$	741

A reconciliation of income taxes at the federal statutory rate of 21% to the effective tax rate was as follows:

	Years ended September 30,
	2023			2022
Income taxes computed at the federal statutory rate	$	(2,309	)	$	(3,314	)
Change in valuation allowance		10,376			1,065
Nondeductible compensation, interest expense and other		232			4,101
State income taxes, net of federal tax benefit		(605	)		(859	)
Change in R&D credit carryover		(433	)		(186	)
Stock options and other prior year true-ups		111			25
Foreign rate differential & foreign taxes		28			(1	)
State business credit utilization		-			(90	)
	$	7,400		$	741

The types of temporary differences between the tax basis of assets and liabilities and their approximate tax effects that give rise to a significant portion of the net deferred tax asset as of September 30, 2023 and 2022 were as follows:

	September 30,
	2023			2022
Deferred tax assets
Net operating loss carryforwards	$	10,665		$	10,054
Research and development credit		4,929			4,712
Share-based compensation		650			688
Patents		2,203			2,331
Accruals and other		2,071			2,245
Capitalized R&E expenses		1,916			-
Allowances		237			280
Gross deferred tax assets		22,671			20,310
Deferred tax liabilities
Equipment		(274	)		(313	)
Operating ROU assets		(907	)		(1,066	)
Acquired intangible assets		(1,736	)		(2,180	)
Gross deferred tax liabilities		(2,917	)		(3,559	)
Less valuation allowance		(19,754	)		(9,378	)
Net deferred tax assets and liabilities	$	-		$	7,373

As of September 30, 2023, the Company had net deferred tax assets and liabilities of approximately $0 due to the establishment of a full valuation allowance against its net deferred tax assets. The deferred tax assets are primarily comprised of federal and state NOL carryforwards and federal and state research and development (“R&D”) tax credit carryforwards offset by valuation allowance. As of September 30, 2023, the Company had federal NOL carryforwards of approximately $32,390, which expire from tax years September 30, 2024 through 2037, except for $1,526 which have an indefinite carryforward period. The Company also has an estimated $2,844 and $306 of federal and California R&D tax credits, respectively, as of September 30, 2023, where a portion of federal R&D tax credits will begin to expire in 2024. The California R&D tax credits do not expire.

The Company reviews its ability to realize its deferred tax assets on a quarterly basis. In doing so, management considers historical and projected taxable income of the Company, along with any tax planning strategies and any other positive or negative evidence. Realization is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards and other deferred assets. As of September 30, 2023, the Company does not believe that it is more likely than not that its deferred tax assets will be realized; accordingly, a full valuation allowance has been established and no deferred tax asset is shown in the accompanying balance sheet.

As of September 30, 2023, the Company had no unrecognized tax benefits. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

Pursuant to Internal Revenue Code (IRC) Sections 382 and 383, the annual use of the Company’s net operating loss and R&D tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. Due to the existence of the valuation allowance, any permanent limitations on the use of the Company’s net operating loss and research and development credit carryforwards will not impact the Company’s effective tax rate.

The Company is subject to taxation in the U.S. and various foreign jurisdictions. The Company's U.S. federal tax returns since September 30, 2004 are subject to examination by the Internal Revenue Service due to the generation of U.S. federal NOL and credit carryforwards. The Company's U.S. state returns are generally subject to examination for four years after the filing date.

The Tax Cuts and Jobs Act resulted in significant changes to the treatment of research & experimental ("R&E") costs under IRC Section 174. For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all R&E costs that are paid or incurred in connection with their trade or business which represent costs in the experimental or laboratory sense. Specifically, costs for U.S. based R&E activities must be amortized over five years and costs for foreign R&E activities must be amortized over 15 years; both using a mid-year convention. The Company has incorporated the impact of this new tax legislation into its 2022 consolidated financial statements and established a $1,916 deferred tax asset for the remaining amortizable tax basis in its 2022 R&E costs in the table of deferred taxes above. The impact on the Company’s consolidated financial statements was immaterial given the full valuation allowance against the Company’s U.S. net deferred tax assets.