Bridgeline Digital, Inc. Income Taxes Disclosure

17. Income Taxes

 

The components of the Company’s tax provision (benefit) as of September 30, 2025 and 2024, is as follows: 

 

		Year Ended September 30,
		2025				2024
Current:
Federal		$	-			$	-
State			18				22
Foreign			-				-
Total current			18				22
Deferred:
Federal			-				-
State			-				-
Foreign			(57	)			(65	)
Total deferred			(57	)			(65	)
Grand total		$	(39	)		$	(43	)

 

The Company’s income tax provision was computed using the federal statutory rate and state statutory rates, net of related federal benefit. The provision differs from the amount computed by applying the statutory federal income tax rate to pretax income, as follows:

 

		Year Ended September 30,
		2025						%		2024						%
Income tax (benefit)/provision		$	(537	)			21.0	%		$	(421	)			21.0	%
Permanent differences, net			42				(1.6	)%			36				(1.8	)%
State income tax provision/(benefit)			14				(0.5	)%			17				(0.8	)%
Foreign income taxed at different rates			(37	)			1.4	%			(118	)			5.9	%
Change in valuation allowance on deferred tax assets			362				(14.2	)%			534				(26.6	)%
True up adjustments			117				(4.6	)%			(91	)			4.5	%
Total		$	(39	)			1.5	%		$	(43	)			2.1	%

 

 

As of September 30, 2025, the Company has federal net operating loss (“NOL”) carryforwards of approximately $37.4 million of which $29.0 million is subject to the 20-year carryforward and expire on various dates through 2038. The remaining federal NOL carryforward of $8.4 million is indefinite. Internal Revenue Code Section 382 places a limitation on the amount of taxable income which can be offset by NOL carryforwards after a change in control of a loss corporation. Due to these “change of ownership” provisions, utilization of NOL carryforwards may be subject to an annual limitation on utilization against taxable income in future periods. The Company has not performed a Section 382 analysis. However, if performed, Section 382 may be found to limit potential future utilization of the Company’s NOL carryforwards. The Company also has approximately $51.5 million in state NOLs which expire on various dates through 2045.

 

The Company has deferred tax assets that are available to offset future taxable income. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax assets will not be realized. Management believes that it is more likely than not that all deferred tax assets will not be realized. Accordingly, the Company has established a valuation allowance against a portion of its deferred tax assets at September 30, 2025 and 2024. For each of the years ended September 30, 2025 and 2024, the valuation allowance for deferred tax assets increased by $0.4 million and $0.5 million, respectively

 

We recognize deferred tax assets for stock-based awards that result in deductions on our income tax returns, based on the amount of stock-based compensation recognized and the statutory tax rate in the jurisdiction in which we will receive a tax deduction. The Company’s policy as it relates to interest and penalties related to unrecognized tax benefits is to recognize interest accrued in interest expense and penalties, if incurred, as a component of tax expense.

 

The Company is subject to U.S. federal income tax as well as income tax of certain state jurisdictions. The Company has not been audited by the Internal Revenue Service (“IRS”) or any states in connection with income taxes. The tax periods from 2022 to 2025 generally remain open to examination by the IRS and state authorities.

 

Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

		September 30,
		2025				2024
Deferred tax assets:
Bad debt reserve		$	84			$	66
Accrued expenses			168				139
Net operating loss carryforwards			10,947				10,699
Right of use liability			33				97
Stock options			537				498
Other			19				17
Total deferred tax assets			11,788				11,516
Valuation allowance			(11,698	)			(11,336	)
Net deferred tax assets			90				180
Deferred tax liabilities:
Right of use asset			33				97
Depreciation			3				7
Intangibles			200				251
Total deferred tax liabilities			236				355
Net deferred tax liabilities		$	(146	)		$	(175	)

 

Net deferred tax assets are reflected in Other assets and net deferred tax liabilities are reflected in Other long-term liabilities on the consolidated balance sheets. There were no undistributed earnings of the Company’s foreign subsidiaries at September 30, 2025 and 2024.

 

The Tax Cuts and Jobs Act (“2017 Tax Act”), enacted on December 22, 2017, subjects a U.S. stockholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, provides that an entity may make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years, or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Additionally, the 2017 Tax Act provides for a tax benefit to U.S. taxpayers that sell goods or services to foreign customers under the new Foreign Derived Intangible Income Deduction (“FDII”) rules. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) included reforms to the US international income tax regime. For tax years beginning after December 31, 2025, there is a permanent 40% deduction for net CFC tested income (“NCTI”), which replaces GILTI, and makes several changes to the determination of tested income and the amount of the foreign tax credit.  In addition, there is a permanent 33.34% foreign-derived deduction eligible income (“FDDEI”), which replaces FDII and makes several changes to the determination of deduction eligible income (“DEI”). As of September 30, 2025 and  September 30, 2024, the Company did not have GILTI to be reported.

 

When accounting for uncertain income tax positions, the impact of uncertain tax positions is recognized in the consolidated financial statements if they are more likely than not of being sustained upon examination, based on the technical merits of the position. The Company’s management has determined that the Company has no uncertain tax positions requiring recognition as of September 30, 2025 and 2024. The Company does not expect any change to this determination in the next twelve months.