10. Income Taxes

As of September 30, 2024, the Company had federal and state net operating loss (“NOL”) carryforwards of approximately $24.0 million and $29.2 million, respectively, which begin to expire in tax years 2034 for federal and 2025 for state purposes. Of the $24.0 million of federal net operating losses, $6.6 million can be carried indefinitely.

Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. Each year, the Company performs an evaluation to determine whether a valuation allowance is needed. As of September 30, 2024, the Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company also considered whether there was any currently available information about future years. As of September 30, 2024, management determined that there is sufficient evidence to conclude that it is more likely than not that the federal portion of its deferred tax assets are realizable. Additionally, management determined that certain state NOLs are more likely than not to expire before utilization as they do not have an unlimited carryforward. Accordingly, the Company recorded a valuation allowance against all of its state NOLs during fiscal 2024. Prior to this, as of September 30, 2023, management determined that there was sufficient positive evidence to conclude that it was more likely than not that all deferred taxes were realizable. The Company therefore fully released the former valuation allowance during fiscal 2023.

Under Internal Revenue Code 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. As of the filing date, the Company has not completed a formal study to assess whether one or more ownership changes have occurred that would result in limitations on the usage of its NOLs for Federal or state income tax purposes under Section 382. However, the Company has performed internal analysis and estimates of potential exposure to Section 382 limitations on usage of its NOLs and, as a result, believes that such limitations would not materially restrict its ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income. A key factor in its analysis and conclusion is the presence of significant net unrealized built-in gains available to the Company. Future changes in our stock ownership, which may be outside of our control, may trigger an ownership change. In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an ownership change. Also, ownership changes that have occurred or may occur in the future, could impact utilization of the NOL carryforwards or other tax attributes because of future events and circumstances, which could result in an increase of the Company’s future tax liability.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states and local tax jurisdictions in which we operate or do business in. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

We record tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when our judgement changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the recognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of September 30, 2024, and 2023 we have not recorded any material uncertain tax positions in our consolidated financial statements.

We recognize interest and penalties related to uncertain tax benefits on the income tax expense line in the accompanying consolidated statements of operations. As of September 30, 2024, and 2023, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheets.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from September 30, 2021, to the present. Earlier years may be examined to the extent that the net operating loss carryforwards from those earlier years are used in future periods. The resolution of tax matters is not expected to have a material effect on the Company’s consolidated financial statements.