Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.23.2
Income Taxes
 9 Months Ended
Jun. 30, 2023
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 $112.7 million and $51.3 million, respectively, for income tax purposes with $29.7 million and $31.6 million, respectively, expiring in years 2023 to 2042 and $82.9 million and $19.6 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 $5.9 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 (“Section 174”) effective for the Company October 1, 2022. The amended provision under Section 174 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 June 30, 2023, we recorded a decrease to income tax benefit and an increase to deferred tax assets, before applying a valuation allowance, of approximately $8.7 million as a result of the amended provision under Section 174. 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 from the amended provision under Section 174 is zero.

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

Three Months Ended

Nine Months Ended

June 30,

June 30,

2023

2022

2023

2022

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

$

1,338,068

$

(4,632,174)

$

(14,573,616)

$

(8,931,007)

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

103,605

(358,662)

(1,128,414)

(691,515)

Non-deductible expenses

(262,005)

(355,069)

185,564

4,860

Effect of stock options exercised

—

(147,570)

63,849

(170,920)

U.S. research and development tax credit

2,835,378

(1,283,944)

415,378

(4,160,374)

Effect of foreign income tax rates

406,324

366,493

307,188

327,055

Effect of global intangible low taxed income

(24,691)

(12,989)

(24,691)

—

Change in valuation allowance

(4,317,909)

6,504,878

14,705,293

13,637,539

Other, net

(21,219)

56,640

(27,837)

209,170

Income tax expense (benefit)

$

57,551

$

137,603

$

(77,286)

$

224,808

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

June 30,

September 30,

2023

2022

Deferred tax assets:

Federal net operating loss carryforwards

$

26,685,200

$

23,627,461

State net operating loss carryforwards

3,100,416

2,850,956

Foreign net operating loss carryforwards – U.K.

16,083,790

15,773,497

Foreign capital allowance – U.K.

128,490

128,490

U.S. research and development tax credit carryforwards

8,066,411

8,481,789

U.S. research and development expense

8,722,825

—

Accrued compensation

764,724

1,227,290

Share-based compensation

6,926,088

4,325,354

Interest expense

2,520,769

2,206,484

Credit loss provision

885,562

—

Change in fair value of derivative liabilities

—

220,607

Other, net – U.K.

265,631

265,631

Other, net – Malaysia

4,712

—

Other, net – U.S.

81,387

81,507

Gross deferred tax assets

74,236,005

59,189,066

Valuation allowance for deferred tax assets

(60,077,745)

(45,372,452)

Net deferred tax assets

14,158,260

13,816,614

Deferred tax liabilities:

In-process research and development

—

(882,427)

Change in fair value of derivative liabilities

(304,098)

—

Gain on sale of ENTADFI® assets

(750,686)

—

Other, net - Malaysia

—

(17,641)

Other, net – U.S.

(5,386)

(31,628)

Net deferred tax liabilities

(1,060,170)

(931,696)

Net deferred tax asset

$

13,098,090

$

12,884,918

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

June 30,

September 30,

2023

2022

Deferred tax asset – U.K.

$

13,093,378

$

12,965,985

Deferred tax asset – Malaysia

4,712

—

Total deferred tax asset

$

13,098,090

$

12,965,985

Deferred tax liability – U.S.

$

—

$

(63,426)

Deferred tax liability – Malaysia

—

(17,641)

Total deferred tax liability

$

—

$

(81,067)