Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.21.4
Income Taxes
 12 Months Ended
Sep. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company follows the provisions of the accounting guidance on accounting for income taxes which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax asset to a level which, more likely than not, will be realized.

The provision (benefit) for income taxes is comprised of the following components:
For the Years Ended
September 30,
2021 2020 2019
Current:
Federal
 $ —  $ —  $ — 
State
 —  —  — 
Total current
 —  —  — 
Deferred:
Federal
 (2,701) —  — 
State
 (942) —  — 
Total deferred (3,643) —  — 
Total income tax benefit
 $ (3,643) $ —  $ — 
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences are as follows:
For the Years Ended
September 30,
2021 2020 2019
Tax at federal statutory rate (21.00) % (21.00) % (21.00) %
State and local tax —  % (5.40) % (9.30) %
Non-deductible stock compensation (0.02) % 0.30  % 0.30  %
Warrant liability 9.65  % —  % —  %
Non-deductible expenses 1.22  % 0.70  % 0.70  %
Change in deferred tax rate —  % 0.30  % —  %
Other 0.43  % —  % —  %
Change in valuation allowance 18.06  % 25.10  % 29.30  %
Effective tax rate 8.34  % 0.00  % 0.00  %

The Company’s deferred tax assets/(liabilities) consist of the following:
As of September 30,
2021 2020
Deferred tax assets:
Net operating loss carryforwards $ 13,668  $ 9,769 
Stock-based compensation 2,136  231 
Research and development credits 205  — 
Amortization of intangibles —  71 
Other 184  — 
Total deferred tax assets 16,193  10,071 
Deferred tax liabilities:
Property and equipment (405) (29)
481(a) Adjustment (368) — 
Amortization of intangibles (3,148) — 
Total deferred tax liabilities (3,921) (29)
Total gross deferred tax assets/(liabilities) 12,272  10,042 
Less: Valuation allowance (12,467) (10,042)
Deferred tax assets/(liabilities), net of valuation allowance $ (195) $ — 

As of September 30, 2021, the Company has a valuation allowance of approximately $12,500 against the net deferred tax assets, for which realization cannot be considered more likely than not at this time. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. As of September 30, 2021 and 2020, based upon the consideration of such evidence, management believes a full valuation allowance against net deferred tax assets is warranted.

The valuation allowance recorded by the Company as of September 30, 2021 resulted from the uncertainties of the future utilization of deferred tax assets relating primarily to net operating loss (“NOL”) carryforwards for federal and state income tax purposes. Realization of the NOL carryforwards is contingent on future taxable earnings. The deferred tax asset was reviewed for expected utilization using a “more likely than not” approach by assessing the available positive and negative evidence surrounding its recoverability. Accordingly, a full valuation allowance continues to be recorded against the Company’s deferred tax assets, as it was determined based upon past and projected future losses that it was “more likely than not” that the Company’s deferred tax assets would not be realized.
As of September 30, 2021, the Company has a net deferred tax liability, due to what is referred to as a “naked credit.” The naked credit exist when a deferred tax liability can only be offset up to 80% by NOLs generated in tax years ending September 30, 2019 and beyond, as well as NOLs available after consideration of IRC Section 382 limitation. The remaining portion that cannot be used remains as a liability. In future years, if the deferred tax assets are determined by management to be “more likely than not” to be realized, the recognized tax benefits relating to the reversal of the valuation allowance as of September 30, 2021 will be recorded. The Company will continue to assess and evaluate strategies that will enable the deferred tax asset, or portion thereof, to be utilized, and will reduce the valuation allowance appropriately as such time when it is determined that the “more likely than not” criteria is satisfied.

Further, as of September 30, 2021, the Company has approximately $47,000 of federal and $62,600 of state and local net operating loss carryforwards. The federal, state and city net operating losses begin to expire in the year 2035. Federal net operating losses for tax years years beginning after December 31, 2017 do not expire. The Company has approximately $33,000 of federal net operating losses that with an indefinite life.

Sections 382 and 383 of the Internal Revenue Code of 1986 subject the future utilization of net operating losses and certain other tax attributes, such as research and experimental tax credits, to an annual limitation in the event of certain ownership changes, as defined. The Company has undergone an ownership change study and has determined multiple "changes in ownership" as defined by IRC Section 382 of the Internal Revenue Code of 1986, did occur in December 2017, February 2018, and May 2021.

Accordingly, approximately $44,000 of the Company's NOL carryforwards are subject to limitation. Based on the Company having undergone multiple ownership changes throughout its history, these NOLs are subject to limitation at varying rates each year. In total, approximately $47,000 of NOLs can be utilized in the future, after considering that $4,400 of NOLs are not subject to limitation and $1,500 expected to expire unused, has already been eliminated from the total. In addition, approximately $112 of R&D Credits are expected to expire unused. The deferred tax assets associated with the attributes that will expire without utilization have not been included within the deferred tax asset table listed above. There are approximately $16,600 of NOLs available to offset taxable income as of September 30, 2021. By September 30, 2022, $42,200 of NOLs will be available, with NOLs continuing to become available through September 30, 2038.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the COVID-19 pandemic. The CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes, contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020, among other provisions. The provision for income taxes of the Company were not materially impacted by the act. The Company will continue to assess the impact of the CARES Act and other legislation going forward.

The Company recognizes tax liabilities when, despite its belief that its tax return positions are supportable, the Company believes that certain positions may not be fully sustained upon review by tax authorities. Each period the Company assesses uncertain tax positions for recognition, measurement and effective settlement. Benefits from uncertain tax positions are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Where the Company has determined that its tax return filing position does not satisfy the more-likely-than-not recognition threshold, the Company has recorded no tax benefits. As of September 30, 2021, the Company has no unrecognized tax benefits.

The Company files tax returns in the U.S. federal and various state and local jurisdictions and is subject to examination by tax authorities. The Company has reported net operating losses dating back to inception. When a taxpayer applies a net operating loss, the IRS may examine records and other evidence from the year when the loss occurred, even when it is outside the three-year statute of limitations. Thus, the Company is subject to U.S. federal income tax examinations for all years.