XML 29 R17.htm IDEA: XBRL DOCUMENT v3.20.2
Income Taxes
 12 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 11 - Income Taxes

 

The effective tax rate for the Company for the year ended September 30, 2020 and 2019 was zero percent. A reconciliation of income tax computed at the statutory federal income tax rate to the provision (benefit) for income taxes included in the accompanying statements of operations for the Company is as follows:

 

   2020   2019 
Income tax benefit at federal statutory rate   (21.0)%   (21.0)%
State income tax, net of federal benefit   (7.7)   (7.7)
Warrant expense   —    2.5 
Disqualified interest and other   17.0    0.2 
Research credits   (1.3)   (2.0)
Stock-based compensation and other   0.2    (0.8)
Valuation allowance   12.8    28.8 
Effective tax rate   —%   —%

 

Significant components of the Company's deferred tax assets and liabilities are summarized in the tables below as of September 30, 2020 and 2019:

 

   2020   2019 
Deferred tax assets:        
Federal and state operating loss carryforwards  $4,936,384   $3,528,712 
Acquired intangibles   22,635    16,221 
Accruals and other   30,406    40,113 
Research and development credit carryforwards   450,081    275,343 
Stock-based compensation   255,068    90,819 
Total deferred tax assets   5,694,574    3,951,208 
Valuation allowance   (5,694,574)   (3,951,208)
Net deferred tax assets  $—   $— 

 

As of September 30, 2020 and 2019, the Company had gross deferred tax assets of approximately $5,695,000 and 3,951,000, respectively. Realization of the deferred assets is primarily dependent upon future taxable income, if any, the amount and timing of which are uncertain. The Company has had significant pre-tax losses since its inception. The Company has not yet generated revenues from sales and faces significant challenges to becoming profitable. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance of approximately $5,695,000 and $3,951,000 as of September 30, 2020 and 2019, respectively. The U.S. net deferred tax assets will continue to require a valuation allowance until the Company can demonstrate their realizability through sustained profitability or another source of income.

 

As of September 30, 2020 and 2019, the Company's federal net operating loss carryforwards were approximately $17,175,000 and $12,277,000, respectively. The Company had federal research credit carryforwards as of September 30, 2020 and 2019 of approximately $272,000 and $166,000, respectively. The federal net operating loss incurred prior to January 1, 2018 and tax credit carryforwards will begin to expire in 2036 if not utilized. Federal net operating losses incurred after December 31, 2017 will not expire. As of September 30, 2020 and 2019, the Company had state net operating loss carryforwards of approximately $17,175,000 and $12,277,000, respectively. The Company had state research credit carryforwards of approximately $178,000 and $110,000 as of September 30, 2020 and 2019, respectively. The state net operating loss carryforwards will begin to expire in 2031, if not utilized, and the state research credit carryforwards will begin to expire in 2032 if not utilized.

 

Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. Generally, in addition to certain entity reorganizations, the limitation applies when one or more "5-percent shareholders" increase their ownership, in the aggregate, by more than 50 percentage points over a 36-month testing period or beginning the day after the most recent ownership change, if shorter. The annual limitation may result in the expiration of net operating losses and credits before utilization.

 

In accordance with ASC 740, Income Taxes ("ASC 740"), specifically related to uncertain tax positions, a Company is required to use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company believes its income tax filing positions and deductions will be sustained upon examination, and accordingly, no reserves or related accruals for interest and penalties have been recorded at September 30, 2020 and 2019.

 

In accordance with this guidance, the Company has adopted a policy under which, if required to be recognized in the future, interest related to the underpayment of income taxes will be classified as a component of interest expense and any related penalties will be classified in operating expenses in the statements of operations.

 

The Company's corporate returns are subject to examination for the 2016, 2017, 2018 and 2019 tax years for federal and subject to examination for the 2016, 2017, 2018 and 2019 tax years in several state jurisdictions.