10. Income 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, 2026 and 2025, 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 by $5.1 million during the year ended June 30, 2026. Net operating losses carryforwards as of June 30, 2026 are as follows:

The Company is subject to taxation in the U.S., various state jurisdictions and Australia. The Company's tax returns for the tax years 2020 through 2024 are open and subject to examination by federal taxing authorities and the Company's tax returns for tax years 2021 through 2024 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, 2026, 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 ("Sec 382 Limitation") on the amount of taxable income that can be offset by net operating loss ("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 Sec 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 the 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 June 27, 2024, California's Governor signed Senate Bill 167 (SB 167), which limits the use of net operating losses and business credits for tax years beginning on January 1, 2024, and before January 1, 2027. The legislation disallowed a net operating loss deduction for medium and large businesses and limits the use of tax credits to offset tax due to no more than $5 million for each taxable year. The Company evaluated the impact of SB 167 and determined that the legislation did not materially impact the Company's income tax provision for the fiscal year ended June 30, 2026.

On July 2025, the U.S. President signed H.R.1, the “One Big Beautiful Bill Act” into law. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses that began in 2025, including the restoration of immediate expensing of domestic R&D expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense. The Act also made certain changes to the deductibility of the cost of meals and charitable contributions that are effective for tax years beginning after December 31, 2025. The Act also includes certain changes to the U.S. taxation of foreign activity, including changes to foreign tax credits, Global Intangible Low-Taxed Income, Foreign-Derived Intangible Income, and Base Erosion and Anti-Abuse Tax, amongst other changes. The provision reflects the current changes to the tax law.