Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.20.2
INCOME TAXES
 12 Months Ended
Jun. 30, 2020
INCOME TAXES  
INCOME TAXES

NOTE 8 — INCOME TAXES

Income Tax Expense

For the fiscal years ended June 30, 2020 and 2019, the reconciliation between the income tax benefit computed by applying the statutory U.S. federal income tax rate to the pre-tax loss before income taxes, and total income tax expense recognized in the financial statements is as follows (in thousands):

 

 

 

 

 

 

 

 

    

2020

    

2019

Income tax benefit at statutory U.S. federal rate

 

$

4,270

 

$

6,394

Income tax benefit attributable to U.S. states

 

 

1,420

 

 

1,876

Non-deductible expenses

 

 

(12)

 

 

(1,045)

Stock option expirations

 

 

(52)

 

 

(1,484)

Other

 

 

392

 

 

(328)

Change in valuation allowance

 

 

(6,018)

 

 

(5,413)

 

 

 

 

 

 

 

Total income tax expense

 

$

 —

 

$

 —

 

For the fiscal years ended June 30, 2020 and 2019, the Company did not recognize any current income tax expense or benefit due to a full valuation allowance on its deferred income tax assets.

Deferred Income Tax Assets and Liabilities

As of June 30, 2020 and 2019, the income tax effects of temporary differences that give rise to significant deferred income tax assets and liabilities are as follows (in thousands):

 

 

 

 

 

 

 

 

    

2020

    

2019

 

 

 

 

 

 

 

Deferred income tax assets:

 

 

  

 

 

  

Net operating loss carryforwards

 

$

21,651

(1)

$

20,016

Intangible assets

 

 

5,182

(1)

 

 —

Stock-based compensation

 

 

4,592

 

 

3,716

Start-up and organizational expenses

 

 

203

 

 

338

Accrued expenses and other

 

 

47

 

 

1,598

 

 

 

 

 

 

 

Total deferred income tax assets

 

 

31,675

 

 

25,668

Valuation allowance for deferred income tax assets

 

 

(31,674)

 

 

(25,656)

Net deferred income tax assets

 

 

 1

 

 

12

Deferred income tax liability- property, equipment and other

 

 

(1)

 

 

(12)

 

 

 

 

 

 

 

Net deferred income tax assets

 

$

 —

 

$

 —

(1)

Amounts include the impact of giving effect to the reclassification of approximately $4.1 million from net operating loss carryforwards to intangible assets due to license fees that were incorrectly expensed for income tax purposes in previous fiscal years. During the fiscal year ended June 30, 2020, the Company’s income tax returns were corrected whereby these license costs were capitalized and are being amortized over 15 years for income tax purposes. Due to the valuation allowance for deferred income tax assets in previous years, this reclassification did not have any impact on the Company’s previously reported net losses or accumulated deficit.

 

For the fiscal year ended June 30, 2020, the valuation allowance increased by $6.0 million, primarily as a result of the increase in net operating losses. In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized.

NOL Carryforwards and Other Matters

The Company files income tax returns in the U.S. federal jurisdiction and the states of Colorado and California. The Company’s federal and state tax years for the 2017 fiscal year and forward are subject to examination by taxing authorities. As of June 30, 2020, the Company has U.S. federal NOL carryforwards of approximately $85.2 million, of which approximately $30.6 million does not expire and $54.6 million will begin to expire in 2031. Additionally, the Company has  Colorado and California NOL carryforwards that begin to expire in 2031.

Federal and state laws impose substantial restrictions on the utilization of NOL carryforwards in the event of an ownership change for income tax purposes, as defined in Section 382 of the Internal Revenue Code (“IRC”). Pursuant to IRC Section 382, annual use of the Company’s NOL carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Section 382 analysis regarding the limitation of NOL carryforwards. However, it is possible that past ownership changes will result in the inability to utilize a significant portion of the Company’s NOL carryforward that was generated prior to any change of control. The Company’s ability to use its remaining NOL carryforwards may be further limited if the Company experiences an IRC 382 ownership change in connection with future changes in the Company’s stock ownership.

The Company did not have any unrecognized tax benefits as of June 30, 2020 and 2019. The Company’s policy is to account for any interest expense and penalties for unrecognized tax benefits as part of the income tax provision. The Company does not anticipate that unrecognized tax benefits will significantly increase or decrease within the next twelve months.