Note 13 – Income Tax Provision

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

The income tax expense for the years ended June 30, 2020, 2019, and 2018 differed from the amounts computed by applying the U.S. federal income tax rate of 21%, 21% and 28.1% respectively as follows:


	For the Year Ended
	June 30,		June 30,		June 30,
	2020		2019		2018
Federal Statutory Rate	(21.00)	%	(21.00)	%	(28.10)	%
Research and Development Credit	0.13	%	(9.21)	%	0.40	%
State Tax Rate	(5.93)	%	(7.49)	%	(3.79)	%
Stock Based Compensation	—	%	0.14	%	—	%
Change in Statutory Federal Rate	—	%	80.30	%	62.36	%
Valuation Allowance	26.79	%	(42.74)	%	(30.87)	%
Effective Tax Rate	—		—		—

The significant components of the Company’s deferred tax assets and liabilities at June 30, 2020 and 2019 are as follows:


	June 30,		June 30,
	2020		2019
Net operating loss	$	24,301,203	$	22,191,536
Research and development credit		6,998,172		6,980,633
Other		3,790,537		4,985,538

Total gross deferred tax assets		35,089,911		34,157,707

Less: valuation allowance		(35,089,911)		(34,157,707)

Net deferred tax asset	$	—	$	—

At June 30, 2020 and 2019, the Company has recorded a full valuation allowance against its net deferred tax assets of $35,089,911 and $34,157,707, respectively, since in the judgment of management, these assets are not more than likely than not to be realized. The increase in the valuation allowance during the year ended June 30, 2020 was $(932,204).

As of June 30, 2020, the Company has approximately $85.5 million of gross net operating loss carryforwards available to reduce future taxable income, if any for federal and state tax purposes. The aggregate federal net operating losses generated for the years ended June 30, 2019 and 2020 of approximately $15.4 million 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. Net operating losses generated in years ended June 30, 2018 and prior have a 20-year carryforward and will begin expiring in 2025. As of June 30, 2020 and 2019, research and development credit carryforwards for federal and state purposes are $6,542,050 and $6,584,541, respectively. The state net operating loss and credit carryforwards begin to expire in 2025.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The Act contains several new or changed income tax provisions, including but not limited to the following: increased limitation threshold for determining deductible interest expense; class life changes to qualified improvements (in general, from 39 years to 15 years), and the ability to carry back net operating losses incurred from tax years 2018 through 2020 up to the five preceding tax years. The Company has evaluated the new tax provisions of the CARES Act and determined the impact to be either immaterial or not applicable.

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.