Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.22.4
Income Taxes
 3 Months Ended
Dec. 31, 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, 2022, the Company had U.S. federal and state NOL carryforwards of $112.5 million and $50.9 million, respectively, for income tax purposes with $29.7 million and $28.4 million, respectively, expiring in years 2023 to 2042 and $82.8 million and $22.5 million, respectively, which can be carried forward indefinitely. As of September 30, 2022, the Company also had U.S. federal research and development tax credit carryforwards of $8.5 million, expiring in years 2038 to 2042. The Company’s U.K. subsidiary has U.K. NOL carryforwards of $63.1 million as of September 30, 2022, which can be carried forward indefinitely to be used to offset future U.K. taxable income.

The Tax Cuts and Jobs Act of 2017, which was signed into U.S. law in December 2017, eliminated the option to immediately deduct research and development expenditures in the year incurred under Section 174 of the Internal Revenue Code effective for the Company October 1, 2022. The amended provision under Section 174 of the Internal Revenue Code requires us to capitalize and amortize these expenditures over five years, for U.S.-based research, and over 15 years, for foreign-based research. As of December 31, 2022, we recorded a decrease to income tax benefit and an increase to deferred tax assets, before applying a valuation allowance, of approximately $3.7 million. Because the Company has a full valuation allowance recorded against U.S. deferred tax assets, the net impact to income tax benefit and deferred tax assets is zero.

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

Three Months Ended

December 31,

2022

2021

Income tax benefit at U.S. federal statutory rates

$

(7,751,197)

$

(1,315,724)

State income tax benefit, net of federal benefit

(600,164)

(101,875)

Non-deductible expenses

113,456

257,196

Effect of stock options exercised

83,736

(23,350)

U.S. research and development tax credit

(1,090,000)

(1,963,430)

Effect of foreign income tax rates

(80,110)

(29,761)

Effect of global intangible low taxed income

—

88,267

Change in valuation allowance

9,256,119

3,089,596

Other, net

(118)

113,736

Income tax (benefit) expense

$

(68,278)

$

114,655

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

December 31,

September 30,

2022

2022

Deferred tax assets:

Federal net operating loss carryforwards

$

26,379,703

$

23,627,461

State net operating loss carryforwards

3,064,102

2,850,956

Foreign net operating loss carryforwards – U.K.

15,927,491

15,773,497

Foreign capital allowance – U.K.

128,490

128,490

U.S. research and development tax credit carryforwards

9,571,789

8,481,789

U.S. research and development expense

3,660,867

—

Accrued compensation

1,521,363

1,227,290

Share-based compensation

5,199,290

4,325,354

Interest expense

2,340,375

2,206,484

Change in fair value of derivative liabilities

372,203

220,607

Other, net – U.K.

265,631

265,631

Other, net – Malaysia

4,988

—

Other, net – U.S.

83,284

81,507

Gross deferred tax assets

68,519,576

59,189,066

Valuation allowance for deferred tax assets

(54,628,571)

(45,372,452)

Net deferred tax assets

13,891,005

13,816,614

Deferred tax liabilities:

In-process research and development

(882,427)

(882,427)

Covenant not-to-compete

(13,468)

(17,508)

Other, net - Malaysia

—

(17,641)

Other, net – U.S.

(6,373)

(14,120)

Net deferred tax liabilities

(902,268)

(931,696)

Net deferred tax asset

$

12,988,737

$

12,884,918

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

December 31,

September 30,

2022

2022

Deferred tax asset – U.K.

$

13,047,175

$

12,965,985

Deferred tax asset – Malaysia

4,988

—

Total deferred tax asset

$

13,052,163

$

12,965,985

Deferred tax liability – U.S.

$

(63,426)

$

(63,426)

Deferred tax liability – Malaysia

—

(17,641)

Total deferred tax liability

$

(63,426)

$

(81,067)