Income Taxes |
12 Months Ended |
|---|---|
Sep. 30, 2021 | |
| Income Taxes [Abstract] | |
| Income Taxes | Note 14 – Income Taxes The Company accounts for income taxes using the liability method, which requires the recognition of deferred tax assets or liabilities for the tax-effected temporary differences between the financial reporting and tax bases of its assets and liabilities, and for net operating loss (NOL) and tax credit carryforwards. Within the calculation of the Company’s annual effective tax rate the Company has used assumptions and estimates that may change as a result of future guidance, interpretations, and rule-making from the Internal Revenue Service, the SEC, the FASB and/or various other taxing jurisdictions. For example, the Company anticipates that state jurisdictions will continue to determine and announce their conformity to the Tax Act which would have an impact on the annual effective tax rate. The Company’s calculations are based on the information available, prepared or analyzed (including computations) in reasonable detail. The Company completes a detailed analysis of its deferred income tax valuation allowances on an annual basis or more frequently if information comes to its attention that would indicate that a revision to its estimates is necessary. In evaluating the Company’s ability to realize its deferred tax assets, management considers all available positive and negative evidence on a country-by-country basis, including past operating results, forecasts of future taxable income, and the potential Section 382 limitation on the NOL carryforwards due to a change in control. In determining future taxable income, management makes assumptions to forecast U.S. federal and state, U.K. and Malaysia operating income, the reversal of temporary differences, and the implementation of any feasible and prudent tax planning strategies. These assumptions require significant judgment regarding the forecasts of the future taxable income in each tax jurisdiction and are consistent with the forecasts used to manage the Company’s business. From fiscal 2006 through fiscal 2015, the Company generated taxable income on a consolidated basis. However, the Company had a cumulative pretax loss in the U.S. for fiscal 2021 and the two preceding fiscal years. Forming a conclusion that a valuation allowance is not needed is difficult when there is significant negative evidence such as cumulative losses in recent years. Management has projected future pretax losses in the U.S. driven by the investment in research and development and based on our analysis, concluded that a full valuation allowance should be recorded related to federal and state NOL carryforwards as of September 30, 2021. The valuation allowance against U.S. deferred tax assets was increased by $4.7 million during the year ended September 30, 2021. As of September 30, 2021 and 2020 respectively, the Company has recorded a valuation allowance of $16.4 million and $11.7 million against U.S. deferred tax assets. In addition, the Company’s U.K. holding company for the non-U.S. operating companies, The Female Health Company Limited, continues to have a full valuation allowance of $3.2 million and $2.4 million as of September 30, 2021 and 2020, respectively. The increase in the valuation allowance for The Female Health Company Limited is due to the increase in the U.K. tax rate. The operating U.K. subsidiary, The Female Health Company (UK) plc does not have a valuation allowance due to projections of future taxable income. As of September 30, 2021, the Company had U.S. federal and state NOL carryforwards of approximately $39.1 million and $24.9 million, respectively, for income tax purposes with $30.5 million and $22.5 million, respectively, expiring in fiscal years 2022 to 2040 and $8.6 million and $2.4 million, respectively, which can be carried forward indefinitely. The Company also has U.S. federal research and development tax credit carryforwards of $2.8 million, expiring in fiscal years 2040 to 2041. The Company’s U.K. subsidiary has U.K. NOL carryforwards of approximately $63.5 million as of September 30, 2021, which can be carried forward indefinitely to be used to offset future U.K. taxable income. Income (loss) before income taxes was taxed by the following jurisdictions for the years ended September 30, 2021 and 2020: 2021 2020 Domestic$ 4,822,626 $ (20,008,999)Foreign (557,390) (42,977)Total$ 4,265,236 $ (20,051,976) A reconciliation between the effective tax rate and the U.S. statutory rate and the related income tax benefit is as follows: 2021 2020 Amount Tax Rate Amount Tax RateIncome tax expense (benefit) at U.S. federal statutory rates$ 895,699 21.0% $ (4,210,916) 21.0%State income tax expense (benefit), net of federal benefits 69,353 1.6 (326,045) 1.6 Effect of change in U.K. tax rate (3,746,247) (87.8) (1,337,263) 6.7 Non-deductible expenses – other 137,003 3.2 114,699 (0.6) U.S. research and development tax credit (2,761,415) (64.7) — — Effect of foreign income tax rates 461,177 10.8 238,645 (1.2) Effect of common stock options and warrants exercised (3,848,412) (90.2) — — Effect of Paycheck Protection Program funds (113,442) (2.7) — — Effect of global intangible low-taxed income 219,167 5.1 143,219 (0.7) Change in valuation allowance 5,505,271 129.1 4,244,531 (21.2) Other, net 52,708 1.2 54,689 (0.2) Income tax benefit$ (3,129,138) (73.4)% $ (1,078,441) 5.4% On June 10, 2021, the U.K. Finance Act 2021 was enacted increasing the U.K. tax rate from 19% to 25% effective April 1, 2023. The increase in the tax rate increased the value of the deferred tax assets in the U.K. by $3.7 million with a corresponding valuation allowance of $0.7 million, which resulted in a net income tax benefit of $3.0 million. The federal and state income tax (benefit) expense for the years ended September 30, 2021 and 2020 is summarized below: 2021 2020 Deferred – U.S.$ — $ (229,313)Deferred – U.K. (3,457,096) (1,033,131)Deferred – Malaysia (111,952) 7,432Subtotal (3,569,048) (1,255,012) Current – U.S. 51,880 (10,484)Current – Malaysia 388,030 187,055Subtotal 439,910 176,571 Income tax benefit$ (3,129,138) $ (1,078,441) Significant components of the Company’s deferred tax assets and liabilities are as follows: 2021 2020Deferred tax assets: Federal net operating loss carryforwards$ 8,209,224 $ 8,759,589State net operating loss carryforwards 1,646,827 1,682,104Foreign net operating loss carryforwards – U.K. 15,875,889 11,655,853Foreign capital allowance – U.K. 117,709 113,522U.K. bad debts 2,500 1,900Share-based compensation – U.K. 80,844 91,839U.S. research and development tax credit carryforward 2,761,415 —U.S. deferred rent 31,034 40,236Share-based compensation 2,071,838 1,255,983Interest expense 1,368,042 850,248Change in fair value of derivative liability 1,025,425 195,265Other, net – Malaysia 100,654 —Other, net – U.S. 172,203 139,441Gross deferred tax assets 33,463,604 24,785,980Valuation allowance for deferred tax assets (19,580,011) (14,074,740)Net deferred tax assets 13,883,593 10,711,240Deferred tax liabilities: In process research and development (882,427) (882,427)Developed technology — (369,237)Covenant not-to-compete (33,671) (49,832)Other, net – Malaysia — (11,297)Other (6,371) (6,371)Net deferred tax liabilities (922,469) (1,319,164)Net deferred tax asset$ 12,961,124 $ 9,392,076 The deferred tax amounts have been classified in the accompanying consolidated balance sheets as follows: 2021 2020 Long-term deferred tax asset – U.K.$ 12,923,896 $ 9,466,800Long-term deferred tax asset – Malaysia 100,654 —Total long-term deferred tax asset$ 13,024,550 $ 9,466,800 Long-term deferred tax liability – U.S.$ (63,426) $ (63,427)Long-term deferred tax liability – Malaysia — (11,297)Total long-term deferred tax liability $ (63,426) $ (74,724) ASC Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 developed a two-step process to evaluate a tax position and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has not recorded a reserve for any tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company files tax returns in all appropriate jurisdictions, including foreign, U.S. federal and state tax returns. The following summarizes open tax years in the relevant jurisdictions: For the U.S., a tax return may be audited any time within 3 years from filing date. The U.S. open tax years are for fiscal 2018 through 2020, which expire in years 2022 through 2024, respectively. For Malaysia, a tax return may be audited any time within 5 years from filing date (7 months after the fiscal year end). The Malaysia open tax years are for 2016 through 2020, which expire on December 31, 2021 through 2025. For the U.K., a tax return may be audited within 1 year from the later of: the filing date or the filing deadline (1 year after the end of the accounting period). The U.K. open tax year is for 2020, which expires in 2022. The fiscal 2021 tax returns for all jurisdiction have not been filed as of the date of this filing. As of September 30, 2021 and 2020, the Company has no recorded liability for unrecognized tax benefits. The Company recognizes interest and penalties related to uncertain tax positions as income tax expense as incurred. No expense for interest and penalties was recognized for the years ended September 30, 2021 and 2020. |