Annual report pursuant to Section 13 and 15(d)

Income taxes

v3.22.2.2
Income taxes
 12 Months Ended
Jun. 30, 2022
Income Tax Disclosure [Abstract]  
Income taxes
11. Income taxes
Loss before provision for income taxes consisted of the following:
 
(US$’000)
   
Year Ended

June 30,
  
    
2022
     
2021
  
United States
    $ (17,369 )     $ 7,911  
International
      (839 )       (5,971 ) 
    
 
 
     
 
 
  
Total
    $ (18,208 )     $ (13,882 ) 
    
 
 
     
 
 
  
The tax effects of significant items comprising the Company’s deferred taxes are as follows:
 
(US$’000)
  
June 30,
 
 
  
2022
 
  
2021
 
Deferred tax assets:
  
  
     
Net operating losses
    $ 17,348      $ 15,902  
Other
      348        230  
Lease liability
      170        45  
Share-based compensation
      205        88  
Intangible assets
      250        212  
    
 
 
     
 
 
  
Gross deferred tax assets
      18,321        16,477  
Less valuation allowance
      (17,965 )       (16,223 ) 
    
 
 
     
 
 
  
Deferred tax liabilities:
                  
Right-of-use assets
      (162 )       (42 ) 
Fixed assets
      (43 )       (76 ) 
Prepaid expenses
      (151 )       (136 ) 
    
 
 
     
 
 
  
Total deferred tax liabilities
      (356 )       (254 ) 
    
 
 
     
 
 
  
Net deferred taxes
    $ —        $ —    
    
 
 
     
 
 
  
ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance. As of June 30, 2022, and 2021, the Company established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets.
The valuation allowance increased $1,742
 
during the year ended June 30, 2022. Net operating losses and tax credit carryforwards as of June 30, 2022 are as follows:
 
(US$’000)
  
Amount
 
  
Expiration
Years
 
Net operating losses, federal (post-December 31, 2017)
    $ 25,597        Do not expire  
Net operating losses, state 

      4,632        2031-2034  
Net operating losses, Australia
      46,596        Do not expire  
The effective rate of the Company’s provision (benefit) for income taxes differs from the federal statutory rate as follows:
 
    
Year Ended
June 30,
  
    
2022
    
2021
  
Statutory rate
      21.00 %      21.00 % 
Permanent differences
      (0.22 %)      (8.9 %) 
Share-based payments
      (0.36 %)      (0.32 %) 
Change in valuation allowance
      (20.55 %)      (13.9 %) 
Foreign tax rate differential
      0.13 %      2.12 % 
    
 
 
          
Total
      (0.00 %)      (0.00 %) 
    
 
 
          
The Company is subject to taxation in the U.S., various state jurisdictions and Australia. The Company’s tax returns for the tax years 2014 through 2021 are open and are subject to examination by federal taxing authorities and the Company’s tax returns for tax years 2011 through 2021 are subject to examination by state taxing authorities. The Company is not currently undergoing a tax audit in any federal, state or Australian jurisdiction. The Company does not have any uncertain tax benefits “(UTBs)” as of June 30, 2022 and does not expect its UTBs to change significantly over the next 12 months.
Internal Revenue Code Section 382 places a limitation (“Section 382 Limitation”) on the amount of taxable income that can be offset by NOL carryforwards after a change in control (generally greater than 50% change in ownership within a three-year period) of a loss corporation. California has similar rules. Generally, after a change in control, a loss corporation cannot deduct NOL carryforwards in excess of the Section 382 Limitation. Due to these “change in ownership” provisions, utilization of the NOL and tax credit carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods.
Under Australian income tax legislation, losses can be utilized by the Company if it satisfies firstly the Continuity of Ownership Test (“COT”) or if failing that, the Similar Business Test (“SBT”). Broadly, the COT requires a company to show that it maintained continuity of majority beneficial ownership from the beginning of the year in which a loss is incurred to the end of an income year in which a tax loss is sought to be recouped. The SBT requires a company to demonstrate that a “similar business” has been maintained from the time when the COT is failed and throughout the period until the end of the income year that the losses are being recouped.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law and GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date. The CARES Act includes changes to the tax provisions that benefits business entities, and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act. The tax relief measures for
businesses in the CARES Act include a five-year net operating loss carryback for certain net operating losses, suspension of the annual deduction limitation of 80% of taxable income for certain net operating losses, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property.
The CARES Act also provides other non-tax benefits to assist those impacted by the pandemic. The Company evaluated the impact of the CARES Act and determined that there is no material impact to the income tax provision for the fiscal year ended June 30, 2022.
On June 29, 2020, California Assembly Bill 85 (AB 85) was signed into law, which suspends the use of net operating losses (NOL) and limits the use of research tax credits for 2020, 2021 and 2022, respectively. However, on February 9, 2022, Governor Gavin Newsom signed CA SB 113 (SB 113) into law. The legislation shortens the suspension period for deducting NOL. The suspension of deductions of California NOLs applied to California taxpayers with net business income of
 
$
1
million or more for tax years beginning on or after
January 1, 2020
, and before
January 1, 2023
.
The Company evaluated the impact of the new legislation and determined that it did not materially impact the Company’s income tax provision for the fiscal year ended June 30, 2022.