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Income Taxes

12 Months Ended

Jun. 30, 2021

11. Income Taxes

The provision for income taxes consisted of the following:


	Year Ended June 30,
	2021		2020

	(In thousands)
Current:
Federal	$	—	$	—
State		16		—
Total current tax expense		16		—
Deferred:
Federal		200		—
State		43		—
Total deferred tax expense		243		—
Provision for income taxes	$	259	$	—

Income tax benefit resulting from applying statutory rates in jurisdictions in which the Company is taxed (Federal and various states) differs from the income tax provision (benefit) in the financial statements. Reconciliation of the U.S. federal statutory income tax rates to our effective tax rate is as follows.


	Year Ended June 30,
	2021				2020

		(In thousands)
Tax at statutory rate	$	(12,185)	(21.00)	%	$	(2,934)	(21.00)	%
State income taxes, net of federal benefit		(2,461)	(4.24)	%		(798)	(5.71)	%
Stock based compensation		43	0.07	%		(35)	(0.25)	%
Contingent consideration		(667)	(1.15)	%		54	0.39	%
162(m) limitation		235	0.40	%		—	0.00	%
Transaction costs		160	0.28	%		—	0.00	%
Loss on debt extinguishment and interest expense		—	0.00	%		167	1.20	%
Change in valuation allowance		14,483	24.96	%		3,496	25.02	%
Other		651	1.13	%		50	0.35	%
Net income tax provision (benefit)	$	259	0.45	%	$	—	0.00	%

Deferred income taxes arise from temporary differences in the recognition of certain items for income tax and financial reporting purposes. The approximate tax effects of significant temporary differences which comprise the deferred tax assets and liabilities are as follows for the respective periods:


	Year Ended June 30,
	2021		2020

	(In thousands)
Deferred tax assets:
Net operating loss carry forward	$	106,712	$	37,191
Accrued Rebates		8,412		—
Share-based compensation		2,330		1,891
Accrued expenses		1,507		855
R&D credits		2,115		9
Interest		2,064		—
Inventory		1,704		789
Lease liability		1,031		261
Other		1,526		358
Total deferred tax assets		127,401		41,354
Less: valuation allowance		(116,494)		(39,552)
Deferred tax assets, net of valuation allowance		10,907		1,802
Deferred tax liabilities:
Intangibles		(9,396)		(1,578)
ROU asset		(1,009)		(224)
Fixed assets		(745)		—
Total deferred tax liabilities		(11,150)		(1,802)
Net deferred tax liabilities	$	(243)	$	—

The Company has recorded a valuation allowance of $116.5 million and $39.6 million at June 30, 2021 and 2020, respectively, to reserve its net deferred tax assets. The change in valuation allowance is due to the acquisition of Neos, resulting in a $62.5 million valuation allowance being established at the acquisition date and the remainder of the change is due to the change in inventory of deferred items exclusive of indefinite lived deferred tax liabilities which can not be fully offset with existing attributes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, carry back opportunities and tax planning strategies in making the assessment. The Company believes it is more likely than not it will realize the benefits of these deductible differences, net of the valuation allowance provided.

The Company had federal net operating losses of approximately $466.7 million and $147.0 million as of June 30, 2021 and June 30, 2020, respectively that, subject to limitation, may be available in future tax years to offset taxable income. Of the available federal net operating losses, approximately $130.4 million can be carried forward indefinitely while the balance will begin to expire in 2024. As of June 30, 2021, the Company had research and development credits of $2.7 million, which begin to expire in 2024. The available state net operating losses, if not utilized to offset taxable income in future periods, will begin to expire in 2025 through 2038. Under the provisions of the Internal Revenue Code, substantial changes in the Company’s ownership may result in limitations on the amount of NOL carryforwards that can be utilized in future years. Net operating loss carryforwards are subject to examination in the year they are utilized regardless of whether the tax year in which they are generated has been closed by statute. The amount subject to disallowance is limited to the NOL utilized. Accordingly, the Company may be subject to examination for prior NOLs generated as such NOLs are utilized. As of June 30, 2021, the Company had various state NOL carryforwards. The determination of the state NOL carryforwards is dependent on apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company has no accrued interest related to its uncertain tax positions as they all relate to timing differences that would adjust the Company’s net operating loss carryforward, interest expense carryover or research and development credit carryover and therefore do not require recognition. As a result of these timing differences, at June 30, 2021 and 2020, the Company had gross unrecognized tax benefits related to uncertain tax positions of $11.5 million and $0, respectively. Changes in unrecognized benefits in any given year are recorded as a component of deferred tax expense. A tabular rollforward of the Company’s gross unrecognized tax benefits is below.


	June 30,
	2021		2020

	(In thousands)
Beginning balance	$	—	$	—
Increase resulting from prior period tax positions		12,017		—
Increase resulting from current period tax positions		2		—
Decrease resulting from current period tax positions		(482)		—
Ending balance	$	11,537	$	—

The change in the Company’s gross unrecognized tax benefits relates to the acquisition of Neos, whereby historic tax positions of Neos were inherited in the acquisition.

Additionally, Neos pre-acquisition tax years are subject to the same general statute of limitations, resulting in its tax years back to 2004 being subject to examination.

- Definition

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.

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