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Income Taxes

12 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Note 6

Income Taxes

The Company’s U.S. and foreign loss before income taxes are set forth below:

		2019				2018
United States			(18,031,016	)			(14,681,272	)
Foreign			(8,181,782	)			(2,498,718	)
Total			(26,212,798	)			(17,179,990	)

US Tax Reform

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Tax Reform Act”). The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.

As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017. The Company did not need to recognize any provisional tax expense for the year ended September 30, 2018.

The Tax Reform Act also provided for a one-time deemed mandatory repatriation of post – 1986 undistributed foreign subsidiary earnings and profits (“E&P”) as well as Global Intangible Low-Taxed Income (“GILTI”) and Base-Erosion Anti-Abuse provisions. The Company had no adjustments related to these latter noted provisions at September 30, 2018.

The components of net deferred income tax assets as of September 30, 2019 and 2018 are as follows:

		2019				2018
Net operating loss carryforwards		$	18,704,000			$	13,556,000
Research and development tax credit carryforwards			1,162,000				1,605,000
Stock-based compensation			6,570,000				4,677,000
Unpaid charges			69,000				91,000
Intangible asset costs			30,000				35,000
Foreign exchange and other			15,000				16,000
Valuation allowance deferred tax assets			(26,551,000	)			(19,981,000	)
Net deferred tax assets		$	-			$	-

Certain deferred income tax assets in the table above as of September 30, 2018 have been adjusted to reflect state operating loss carryforwards and tax rates with a corresponding offset in the valuation allowance of approximately $3.9 million.

A reconciliation of income tax expense at the statutory federal income tax rate and income taxes as reflected in the financial statements for the years ended September 30, 2019 and 2018 is as follows:

		2019				2018
Income benefit at statutory federal rate		$	(5,505,000	)		$	(4,215,000	)
Foreign income taxed at other rates			(825,000	)			(173,000	)
Other permanent differences			140,000				131,000
Research and development credit benefit			914,000				(102,000	)
Adjustment and true up to prior years' tax provision			194,000				(82,000	)
Effect of changes in tax rates			-				6,832,000
State minimum and excise taxes			82,181				72,746
Change in federal valuation allowance			5,082,000				(2,391,000	)
Income tax expense		$	82,181			$	72,746

As of September 30, 2019, the Company had U.S. federal net operating loss carryforwards of approximately $60.8 million (2018: $50.6 million) which will begin to expire in 2027 and state net operating loss carryforwards of approximately $64.0 million which will begin to expire in 2036. In addition, the Company had approximately $3.5 million (Approximately AUD$ 5.2 million) (2018: $1.0 million) net operating loss carryforwards in Australia, which have an indefinite life and approximately $3.6 million (Approximately € 3.3 million) (2018: $0.6 million) in Germany, available to offset future taxable income in those jurisdictions.

The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change, and this causes a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current income. Because management of the Company does not currently believe that it is more likely than not that the Company will receive the benefit of these assets, a valuation allowance equal to the deferred tax asset has been established at September 30, 2019 and 2018.

Uncertain Tax Positions

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company’s tax returns are subject to tax examinations by U.S. federal and state tax authorities, or examinations by foreign tax authorities until the respective statutes of limitation expire. The Company is subject to tax examinations by tax authorities for all taxation years commencing on or after 2012.

Certain of the Company’s net operating loss carryforwards in the United States may be subject to limitations by Section 382 of the Internal Revenue Code with respect to the amount utilizable each year. This limitation reduces the Company’s ability to utilize net operating loss carryforwards, under certain circumstances. The Company completed a Section 382 analysis through the fiscal year ended September 30, 2019 and currently does not believe Section 382 will apply to limit the utilization of these tax losses.