|12 Months Ended|
Jun. 30, 2022
NOTE 9 — INCOME TAXES
Net Operating Loss Carryforwards
The Company files income tax returns in the US federal jurisdiction and in several states including California, Colorado, and Oregon. The Company’s federal and state tax returns for the 2019 fiscal year and forward are subject to examination by taxing authorities. As of June 30, 2022, the Company has U.S. federal net operating loss (“NOL”) carryforwards of approximately $145.1 million, of which approximately $90.4 million does not expire and $54.7 million will begin to expire in 2031 through 2038. 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 is limited in the event that a cumulative change in ownership of more than 50% occurs within a three-year period. The Company recently completed an IRC Section 382 analysis and concluded that $33.4 million of NOL carryforwards that begin to expire in 2031 will expire without any opportunity for utilization. Accordingly, after giving effect to the limitations under IRC Section 382, the Company has US Federal NOL carryforwards available for utilization of $111.7 million as of June 30, 2022. These NOL carryforwards consist of $21.3 million that will begin to expire in 2031 and $90.4 million that does not expire. Assuming that further IRC Section 382 ownership changes do not occur, these NOL carryforwards consist of approximately (i) $6.8 million that is not subject to any limitations or expiration dates, and (ii) $104.9 million that is subject to limitations whereby amounts ranging from $1.2 million to $4.1 million cumulatively becomes available for unrestricted use in future years.
Income Tax Expense
For the fiscal years ended June 30, 2022 and 2021, 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 consolidated financial statements is as follows (in thousands):
For the fiscal years ended June 30, 2022 and 2021, 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, 2022 and 2021, the income tax effects of temporary differences that give rise to significant deferred income tax assets and liabilities are as follows (in thousands):
For the fiscal year ended June 30, 2022, the valuation allowance increased by $12.3 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.
Unrecognized Tax Benefits
The Company did not have any unrecognized tax benefits as of June 30, 2022 and 2021. 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.
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