Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.19.2
Income Taxes
12 Months Ended
Jun. 30, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

Note 13. Income Taxes

 

On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Act") was signed into law. ASC 740, Accounting for Income Taxes, requires companies to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. Due to the timing of the Company's fiscal year. The lower corporate tax rate was phased in, resulting in a U.S. statutory federal rate of approximately 27.6% for our fiscal year ended June 30, 2018 and 21% for subsequent fiscal years.

 

The SEC issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the appropriate accounting treatment when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. 

 

In the fiscal year ended June 30, 2018, the deferred tax assets and liabilities of the Company were impacted by the Tax Act. The reduction in the U.S. federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, required the Company to remeasure its deferred tax assets and liabilities. In accordance with SAB 118, the Company evaluated this change and recorded a provisional decrease to net deferred tax assets with a corresponding decrease to the Company's valuation allowance against deferred tax assets of $4.6 million. We finalized our accounting for the impact of the Tax Act during fiscal 2019 with no material adjustments to the previous provisional amounts recognized.

 

Income Tax Expense

 

      June 30,
2019
      June 30,
2018
 
Current:                
Federal   $     $  
State and Local            
Total Current Tax Provision            
                 
Deferred:                
Federal            
State and Local            
Total Deferred Tax Provision            
                 
Total Tax Provision   $     $  

   

The provision for/(benefit from) income tax differs from the amount computed by applying the statutory federal income tax rate to income before the provision for/(benefit from) income taxes. The sources and tax effects of the differences are as follows: 

 

   

For the
Year Ended

June 30,
2019

   

For the
Year Ended

June 30,
2018

 
Income taxes at Federal statutory rate     (21.00 )%     (27.55 )%
State income taxes, net of Federal income tax benefit     (0.45 )%     (1.96 )%
Tax Credits     (1.45 )%     (0.21 )%
Permanent differences     (0.23 )%     0.04 %
Convertible Debt Discount     2.89 %     1.90 %
Other     (0.02 )%     0.00 %
Change in Valuation Allowance     18.92 %     12.19 %
Effect of changes in income tax rate applied to net deferred taxes     1.34 %     15.59 %
Income Tax Provision     0.00 %     0.00 %

   

The tax effects of temporary differences that give rise to the Company's deferred tax assets and liabilities are as follows, (in thousands):

 

    June 30,
2019
    June 30,
2018
 
Deferred Tax Assets            
Net Operating Loss Carryforwards   $ 13,196     $ 7,849  
Stock-based compensation     1,786       1,283  
Credits     470       46  
Other     346       514  
      15,798       9,692  
Deferred Tax Liabilities                
Convertible debt discount     (964 )     (397 )
Accumulated depreciation/basis differences     (925 )     (919 )
      (1,889 )     (1,316 )
                 
Valuation Allowance     (13,909 )     (8,376 )
Net Deferred Tax Assets   $     $  

  

At June 30, 2019, the Company had federal loss carryovers of approximately $34.2 million that will expire in stages beginning in 2034 if unused and federal loss carryovers of $26.5 million that will carry forward indefinitely. The North Carolina and New York state loss carryovers of approximately $22.3 million and $12.5 million, respectively, will begin to expire in 2029 if unused. Federal research credits of $0.5 million will expire beginning in 2034 if not utilized.

 

The company has not performed a detailed analysis to determine whether an ownership change under IRC Section 382 has occurred during the year ended June 30, 2019 or during any earlier year. If upon a complete analysis the company were to determine that an ownership change under Section 382 had occurred the effect of the ownership change would be the imposition of annual limitations on the use of NOL carryforwards. Any limitation may result in the expiration of a portion or all of the NOLs before utilization.

 

Based on a history of cumulative losses at the Company and the results of operations for the years ended June 30, 2019 and 2018, the Company determined that it is more likely than not it will not realize benefits from the deferred tax assets. The Company will not record income tax benefits in the financial statements until it is determined that it is more likely than not that the Company will generate sufficient taxable income to realize the deferred income tax assets. As a result of the analysis, the Company determined that a full valuation allowance against the deferred tax assets is required. The net change in the valuation allowance during the year ended June 30, 2019 was an increase of approximately $5.5 million.

 

The Company's gross unrecognized tax benefits totaled $0.1 million as of June 30, 2019 and $0.3 million as of June 30, 2018. Of these amounts, $0.1 million and $0.3 million as of June 30, 2019 and June 30, 2018, respectively, represent the amounts of unrecognized tax benefit that, if recognized, would impact the effective tax rate in each of the fiscal years.

 

A reconciliation of June 30, 2018 through June 30, 2019 beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):

 

    June 30,
2019
    June 30,
2018
 
Beginning Balance   $ 296     $  
Additions based on positions related to the current year     50       250  
Additions for tax positions in prior years           46  
Reductions for tax positions in prior years     (198 )      
Expiration of statute of limitations            
Ending Balance   $ 148     $ 296  

 

The unrecognized tax benefit of $148 thousand at the end of June 30, 2019 is recorded on the Consolidated Balance Sheet as a reduction to the carrying value of the gross deferred tax assets.

 

The Company's fiscal 2015, 2016 and 2017 federal and state returns remain open for examination. The Company is not currently under examination by any taxing authorities.