11. Income tax

Income tax expense for the years ended September 30, 2025 and 2024 consists of foreign and state taxes of $8,492 and $3,650, respectively. The Company’s effective income tax rate differs from the federal statutory rate primarily because of certain expenses that are deductible for financial statement purposes but are not deductible for income tax purposes, research tax credits, the effect of state and foreign income taxes and the impact of valuation allowances.

The Company has elected to prospectively adopt the guidance in ASU No, 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures. The reconciliation of the federal statutory income tax rate to the Company’s provision for income taxes for the year ended September 30, 2025 in accordance with the guidance in ASU No. 2023-09 is as follows:

Deferred income tax assets or (liabilities) are the result of temporary differences between the Company’s financial statements and taxable amounts and are comprised of the following amounts as of September 30, 2025 and 2024:

In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which temporary differences become deductible or includable in taxable income. Management considers projected future taxable income and tax planning strategies in making this assessment. Management believes that there is a possibility that deferred taxes may not be utilized and, accordingly, a full valuation allowance has been recorded.

As of September 30, 2025 the Company has net operating loss carryforwards of $87,765,125 for federal purposes. These consist of $9,820,637 in pre-2018 NOLs which are limited to a 20-year carryforward and will begin to expire in 2032, and $77,984,487 in post-2017 NOLs which do not expire, but these losses can only offset 80% of taxable income in any year. As of September 30, 2025 the Company had a state net operating loss of approximately $47,161,308 that begins to expire in 2034.

As of September 30, 2025 the Company had federal and state research and development tax credit carryforwards of approximately $1,894,431 and $1,418,253, respectively. If not utilized, the federal research and development tax credit carryforwards begin to expire in 2037 and CA credits carry over indefinitely.

The technical merits of a tax position derive from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution with a taxing authority.

Uncertain tax positions are evaluated based upon the facts and circumstances that exist at each reporting period. Subsequent changes in judgment based upon new information may lead to changes in recognition, de-recognition, and measurement. Adjustments may result, for example, upon resolution of an issue with the taxing authorities, or expiration of a statute of limitations barring an assessment for an issue.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

The Company had no accrual for interest and penalties on the consolidated balance sheets and has not recognized interest and/or penalties in the consolidated statements of operations for the years ended September 30, 2025 and 2024.

The Company is subject to taxation in the United States and various State jurisdictions. The Company’s tax years from fiscal year 2022 are subject to examination by the United States and state taxing authorities due to the carryforward of unutilized NOLs.

We have ownership interests in controlled foreign corporations. During 2025 the Company analyzed the potential impact of the Tax Act provisions relating to Global Intangible Low-Taxed Income (“GILTI”) as well as Base Erosion and “&“Anti-Abuse Tax (“BEAT”). Based on the foreign subsidiaries’ tax position, the Company will not incur any impact relating to these two provisions.

The One Big Beautiful Bill Act of 2024 (the “OBBBA”) was enacted in the United States on July 4, 2025. The OBBBA includes a U.S. income tax provision for the reinstatement of immediate expensing for domestic research and experimentation (“R&E”) expenditures under Section 174 and the acceleration of remaining unamortized R&E balances. Pursuant to the OBBBA, the Company has not elected to deduct the remaining domestic R&E capitalized in tax year 2024. The OBBBA did not have a material impact on the Company’s effective tax rate for the year ended September 30, 2025, but could result in a significant reduction to the Company’s intangible deferred tax asset and corresponding valuation allowance offset.