Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.22.2
Income Taxes
 9 Months Ended
Jun. 30, 2022
Income Taxes [Abstract]  
Income Taxes Note 13 – 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.

As of September 30, 2021, the Company had U.S. federal and state NOL carryforwards of $38.8 million and $25.0 million, respectively, for income tax purposes with $29.7 million and $22.6 million, respectively, expiring in years 2022 to 2040 and $9.1 million and $2.4 million, respectively, which can be carried forward indefinitely. As of September 30, 2021, the Company also had U.S. federal research and development tax credit carryforwards of $4.4 million, expiring in years 2038 to 2041. The Company’s U.K. subsidiary has U.K. NOL carryforwards of $63.5 million as of September 30, 2021, which can be carried forward indefinitely to be used to offset future U.K. taxable income.

A reconciliation of income tax expense and the amount computed by applying the U.S. statutory rate of 21% to (loss) income before income taxes is as follows:

Three Months Ended

Nine Months Ended

June 30,

June 30,

2022

2021

2022

2021

Income tax (benefit) expense at U.S. federal statutory rates

$

(4,632,174)

$

(1,168,845)

$

(8,931,007)

$

1,872,314

State income tax (benefit) expense, net of federal (benefit) expense

(358,662)

(90,502)

(691,515)

144,971

Non-deductible expenses

(355,069)

(2,807)

4,860

(2,807)

Effect of stock options exercised

(147,570)

53,011

(170,920)

—

Effect of common stock purchase warrants exercised

—

—

—

(2,038,919)

Effect of Paycheck Protection Program funds

—

8,784

—

(113,442)

U.S. research and development tax credit

(1,283,944)

(919,415)

(4,160,374)

(919,415)

Effect of foreign income tax rates

366,493

(3,716,935)

327,055

(3,744,512)

Effect of global intangible low taxed income

(12,989)

78,626

—

148,383

Change in valuation allowance

6,504,878

2,834,482

13,637,539

1,828,730

Other, net

56,640

50,538

209,170

51,626

Income tax expense (benefit)

$

137,603

$

(2,873,063)

$

224,808

$

(2,773,071)

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

June 30,

September 30,

2022

2021

Deferred tax assets:

Federal net operating loss carryforwards

$

14,771,226

$

8,209,224

State net operating loss carryforwards

2,163,558

1,646,827

Foreign net operating loss carryforwards – U.K.

15,861,787

15,875,889

Foreign capital allowance – U.K.

117,709

117,709

U.S. research and development tax credit carryforwards

6,921,789

2,761,415

Share-based compensation

3,502,093

2,071,838

Interest expense

2,124,706

1,368,042

Change in fair value of derivative liabilities

1,151,454

1,025,425

Other, net – U.K.

83,344

83,344

Other, net – Malaysia

95,736

100,654

Other, net – U.S.

276,602

203,237

Gross deferred tax assets

47,070,004

33,463,604

Valuation allowance for deferred tax assets

(33,217,550)

(19,580,011)

Net deferred tax assets

13,852,454

13,883,593

Deferred tax liabilities:

In-process research and development

(882,427)

(882,427)

Covenant not-to-compete

(21,549)

(33,671)

Other, net – U.S.

(6,371)

(6,371)

Net deferred tax liabilities

(910,347)

(922,469)

Net deferred tax asset

$

12,942,107

$

12,961,124

The deferred tax amounts have been classified on the accompanying unaudited condensed consolidated balance sheets as follows:

June 30,

September 30,

2022

2021

Deferred tax asset – U.K.

$

12,909,797

$

12,923,896

Deferred tax asset – Malaysia

95,736

100,654

Total deferred tax asset

$

13,005,533

$

13,024,550

Deferred tax liability – U.S.

$

(63,426)

$

(63,426)

Total deferred tax liability

$

(63,426)

$

(63,426)