Annual report pursuant to Section 13 and 15(d)

Income taxes

v3.23.3
Income taxes
 12 Months Ended
Jun. 30, 2023
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,
  
    
2023
     
2022
  
United States
    $ (18,953 )     $ (17,369 ) 
International
      (609 )       (839 ) 
    
 
 
     
 
 
  
Total
    $ (19,562 )     $ (18,208 ) 
    
 
 
     
 
 
  
 
The tax effects of significant items comprising the Company’s deferred taxes are as follows:
 
(US$’000)
  
June 30,
 
 
  
2023
 
  
2022
 
Deferred tax assets:
                  
Net operating losses
    $ 18,388      $ 17,348  
Other
      221        348  
Lease liability
      117        170  
Share-based compensation
      263        205  
Intangible assets
      234        250  
Section 174 Capitalization
      3,070        —    
    
 
 
     
 
 
  
Gross deferred tax assets
      22,293        18,321  
Less valuation allowance
      (21,923 )       (17,965 ) 
    
 
 
     
 
 
  
Deferred tax liabilities:
                  
Right-of-use
assets
      (111 )       (162 ) 
Fixed assets
      (15 )       (43 ) 
Prepaid expenses
      (244 )       (151 ) 
    
 
 
     
 
 
  
Total deferred tax liabilities
      (370 )       (356 ) 
    
 
 
     
 
 
  
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, 2023 and 2022, 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 $3.958
million 
during the year ended June 30, 2023. Net operating losses and tax credit carryforwards as of June 30, 2023 are as follows:
 
(US$’000)
   
Amount
     
Expiration
Years
  
Net operating losses, federal (post-December 31, 2017)
    $ 30,496        Do not expire  
Net operating losses, state
      4,632        2031-2042  
Net operating losses, Australia
      46,640        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,
  
    
2023
    
2022
  
Statutory rate
      21.00 %      21.00 % 
Permanent differences
      (0.01 %)      (0.22 %) 
Share-based payments
      (0.19 %
)
 		     (0.36 %) 
Change in valuation allowance
      (20.92 %)      (20.55 %) 
Foreign tax rate differential
      0.12 %      0.13 % 
    
 
 
    
 
 
  
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, 2016, and 2019 through 2022 are open and are subject to examination by federal taxing authorities and the Company’s tax returns for tax years 2011 through 2022 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 entire amount of the Company’s unrecognized tax benefits would not impact its effective tax rate if recognized. The Company has elected to include interest and penalties as a component of tax expense. During the year ended June 30, 2023, the Company did not recognize accrued interest and penalties related to unrecognized tax benefits. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease during 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, 2023.
On June 29, 2020, California Assembly Bill 85 (AB 85) was signed into law, which suspends the use of net operating losses and limits the use of research tax credits for 2020, 2021 and 2022, respectively.
On February 9, 2022, Governor Gavin Newsom signed CA SB 113 (SB 113) into law. The legislation shortens the suspension period for deducting net operating losses (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. SB 113 decreases that suspension period by one year, making the suspension applicable for tax years beginning on or after January 1, 2020, and before January 1, 2022. The Company evaluated the impact of SB 113 and determined that the legislation did not materially impact the Company’s income tax provision for the fiscal year ended June 30, 2023.