|12 Months Ended|
Jun. 30, 2021
|Income Tax Disclosure [Abstract]|
Note 14. Income Taxes
On March 27, 2020, the CARES Act was enacted in response to COVID-19 pandemic. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The CARES Act made various tax law changes including among other things (i) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k) and (iii) made modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes (iv) enhanced recoverability of AMT tax credits. Given the Company’s full valuation allowance position, the CARES Act did not have a material impact on the financial statements.
Income Tax Expense
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:
The tax effects of temporary differences that give rise to the Company’s deferred tax assets and liabilities are as follows, (in thousands):
At June 30, 2021, 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 $115.5 million that will carry forward indefinitely. The North Carolina, New York, and California state loss carryovers of approximately $28.1 million, $11.0 and $10.0 million, respectively, will begin to expire in 2029 if unused. Federal research credits of $1.8 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, 2021 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, 2021 and 2020, 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, 2021 was an increase of approximately $11.0 million.
The Company’s gross unrecognized tax benefits totaled $0.3 million as of June 30, 2021 and $0.2 million as of June 30, 2020. Of these amounts, $0.3 million and $0.2 million as of June 30, 2021 and June 30, 2020, 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, 2020 through June 30, 2021 beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
The unrecognized tax benefit of $326 thousand at the end of June 30, 2021 is recorded on the Consolidated Balance Sheet as a reduction to the carrying value of the gross deferred tax assets.
The Company’s fiscal 2018 federal and state returns and all subsequent years remain open for examination, as well as all attributes brought forward into those years. The Company is not currently under examination by any taxing authorities.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef