Note 12 – Income Tax Provision

On December 22, 2017 the U.S. President signed the Tax Cuts and Jobs Act (the “Tax Act”) into law. Effective January 1, 2018, among other changes, the Tax Act (1) reduces the U.S. federal tax rate from 35 percent to 21 percent, (2) changes the rules relating to net operating loss carryforwards and carrybacks, (3) eliminates the corporate alternative minimum tax (“AMT”) and changes how existing AMT credits can be realized and (4) requires companies to pay a onetime transition tax on certain unrepatriated earnings of foreign subsidiaries.

The Tax Act did not have a material impact on our financial statements since our temporary differences in the United States are fully offset by a valuation allowance and we do not have any significant offshore earnings from which to record the mandatory transition tax.

On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the Tax Act as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. The changes in the Tax Act are broad and complex. The impact on the Company’s financial statements is immaterial, primarily because the Company has a valuation allowance on deferred tax assets.

The Company has no current tax expense due to its losses.

The income tax expense for the years ended June 30, 2019, 2018, and 2017 differed from the amounts computed by applying the U.S. federal income tax rate of 21%, 28.1% and 34% respectively as follows:


	For the Year Ended
	June 30,		June 30,		June 30,
	2019		2018		2017
Federal Statutory Rate	(21.00)	%	(28.10)	%	(34.00)	%
Research and Development Credit	(9.21)	%	0.40	%	(6.87)	%
State Tax Rate	(7.49)	%	(3.79)	%	(4.95)	%
Stock Based Compensation	0.14	%	—	%	—	%
Change in Statutory Federal Rate	80.30	%	62.36	%	—	%
Valuation Allowance	(42.74)	%	(30.87)	%	45.82	%
Effective Tax Rate	—		—		—

The significant components of the Company’s deferred tax assets and liabilities at June 30, 2019 and 2018 are as follows:


	June 30,		June 30,
	2019		2018
Net operating losses	$	22,191,536	$	24,839,394
Research and development credit		6,980,633,		6,198,377
Other		4,985,538		6,047,301

Total gross deferred tax assets		34,157,707		37,085,072

Less: valuation allowance		(34,157,707)		(37,085,072)

Net deferred tax assets	$	—	$	—

At June 30, 2019 and 2018, the Company has recorded a full valuation allowance against its net deferred tax assets of $34,157,707 and $37,085,072, respectively, since in the judgment of management, these assets are not more than likely than not to be realized. The change in the valuation allowance during the year ended June 30, 2019 was $(2,927,366).

As of June 30, 2019, the Company has approximately $78,000,000, of gross net operating loss carryforwards available to reduce future taxable income, if any for federal and state tax purposes. Approximately $70,000,000 of federal net operating losses can be carried forward to future tax years and expire in 2024. The federal net operating loss generated for the year ended June 30, 2019 of approximately $8,000,000 can be carried forward indefinitely. However, the deduction for net operating losses incurred in tax years beginning after January 1, 2018 is limited to 80% of annual taxable income. As of June 30, 2019, credit carryforwards for federal and state purposes are $6,584,541 and $396,092, respectively. The state net operating loss and credit carryforwards begin to expire in 2024.

Due to the change in ownership provisions of the Internal Revenue Code, the availability of the Company’s net operating loss carry-forwards could be subject to annual limitations against taxable income in future periods, which could substantially limit the eventual utilization of such carryforwards. The Company has not analyzed the historical or potential impact of its equity financings on beneficial ownership and therefore no determination has been made whether the net operating loss carryforward is subject to any Internal Revenue Code Section 382 limitation. To the extent there is a limitation, there could be a reduction in the deferred tax asset with an offsetting reduction in the valuation allowance.

The Company applies the elements of FASB ASC 740‑10 “Income Taxes - Overall” regarding accounting for uncertainty in income taxes. This clarifies the accounting for uncertainty in income taxes recognized in financial statements and required impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority. As of June 30, 2019 the Company did not have any unrecognized tax benefits and has not accrued any interest or penalties through 2018 The Company does not expect to have any unrecognized tax benefits within the next twelve months. The Company’s policy is to recognize interest and penalties related to tax matters within the income tax provision.