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. The Company had a cumulative pretax loss in the U.S. for fiscal 2024 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, 2024. The valuation allowance against U.S. deferred tax assets was increased by $7.3 million during the year ended September 30, 2024. As of September 30, 2024 and 2023 respectively, the Company has recorded a valuation allowance of $69.0 million and $61.7 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 as of September 30, 2024 and 2023. The operating U.K. subsidiary, The Female Health Company (UK) plc does not have a valuation allowance due to projections of future taxable income. The Company projects that the deferred tax assets of The Female Health Company (UK) plc will be realized over a significant period of time, which may exceed 20 years. Veru Biopharma UK Limited has a full valuation allowance of $0.4 million and $0.3 million as of September 30, 2024 and 2023, respectively.

As of September 30, 2024, the Company had U.S. federal and state NOL carryforwards of approximately $164.2 million and $70.0 million, respectively, for income tax purposes with $28.6 million and $35.6 million, respectively, expiring in fiscal years 2025 to 2044 and $135.6 million and $34.4 million, respectively, which can be carried forward indefinitely. The Company also has U.S. federal research and development tax credit carryforwards of $7.6 million, expiring in fiscal years 2038 to 2044. The Company’s U.K. subsidiary and Veru Biopharma UK Limited have U.K. NOL carryforwards of approximately $61.2 million as of September 30, 2024, which can be carried forward indefinitely to be used to offset future U.K. taxable income.

Loss before income taxes was taxed by the following jurisdictions for the years ended September 30, 2024 and 2023:

A reconciliation between the effective tax rate and the U.S. statutory rate and the related income tax expense is as follows:

The federal and state income tax expense (benefit) for the years ended September 30, 2024 and 2023 is summarized below:

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

The deferred tax amounts have been classified in the accompanying consolidated balance sheets as follows:

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:

The fiscal 2024 tax returns for all jurisdictions have not been filed as of the date of this filing. As of September 30, 2024 and 2023, 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 material expense for interest and penalties was recognized for the years ended  September 30, 2024 and 2023.