Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.2.2
Income Taxes
12 Months Ended
Jun. 30, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

Note 16. 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.

 

The components of income tax expense (benefit) for the years ended June 30, 2022 and June 30, 2021 are as follows (in thousands):

 

    June 30,
2022
    June 30,
2021
 
Current:            
Federal   $ 134     $
 
State and Local     15      
 
Total Current Tax Provision (Benefit)     149      
 
                 
Deferred:                
Federal     (2,000 )    
 
State and Local     18      
 
Total Deferred Tax Provision (Benefit)     (1,982 )    
 
                 
Total Tax Provision (Benefit)   $ (1,833 )   $
 

 

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,
2022

   

For the
Year Ended

June 30,
2021

 
Income taxes at Federal statutory rate     (21.00 )%     (21.00 )%
State income taxes, net of Federal income tax benefit     (0.29 )%     (0.15 )%
Tax Credits     (1.49 )%     (2.15 )%
Stock-based compensation     0.28 %     (1.30 )%
Other     0.14 %     (0.30 )%
Change in Valuation Allowance     19.32 %     24.92 %
Effect of changes in income tax rate applied to net deferred taxes     0.04 %     (0.02 )%
Income Tax Provision     (3.00 )%     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,
2022
    June 30,
2021
 
Deferred Tax Assets            
Net Operating Loss Carryforwards   $ 47,031     $ 32,688  
Stock-based compensation     3,680       2,804  
Credits     2,725       1,817  
Other     1,022       1,010  
      54,458       38,319  
Deferred Tax Liabilities                
Intangibles     (1,808 )      
Accumulated depreciation/basis differences     (7,158 )     (4,620 )
      (8,966 )     (4,620 )
                 
Valuation Allowance     (45,492 )     (33,699 )
Net Deferred Tax Assets   $
    $
 

 

At June 30, 2022, 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 $182.8 million that will carry forward indefinitely. The North Carolina, New York, California and Florida state loss carryovers of approximately $28.7 million, $11.5, $12.7 and $0.05 million, respectively, will begin to expire in 2029 if unused. Federal research credits of $2.7 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, 2022 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, 2022 and 2021, 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, 2022 was an increase of approximately $11.8 million.

 

The Company’s gross unrecognized tax benefits totaled $0.4 million as of June 30, 2022 and $0.3 million as of June 30, 2021. Of these amounts, $0.4 million and $0.3 million as of June 30, 2022 and June 30, 2021, 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, 2021 through June 30, 2022 beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):

 

    June 30,
2022
    June 30,
2021
 
Beginning Balance   $ 326     $ 200  
Additions based on positions related to the current year     80       60  
Additions for tax positions in prior years     21       66  
Reductions for tax positions in prior years    
     
 
Expiration of statute of limitations    
     
 
Ending Balance   $ 427     $ 326  

 

The unrecognized tax benefit of $427 thousand at the end of June 30, 2022 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.