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Note 11 - Income Taxes
 12 Months Ended
Jun. 30, 2022
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

(11) Income Taxes

 

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized. As of June 30, 2022 and 2021, the Company had established a full valuation allowance against all of its net deferred tax assets.

 

For the fiscal years ended June 30, 2022 and 2021, the Company incurred losses from operations in the amount of $8.3 million and $7.6 million, respectively. There is no effective tax rate for the fiscal years 2022 or 2021. There is no current state tax expense.

 

FASB ASC 740, "Income Taxes" addresses the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company had unrecognized tax benefit of $400 thousand as of June 30, 2022, all of which has been accounted for as contra deferred tax assets.

 

For the years ended June 30, 2022 and 2021, the Company’s effective tax rate differed from the federal statutory rate of 21%, primarily due to prior year deferred true ups and the valuation allowance against its net deferred tax assets.

 

Income Tax Expense and Effective Tax Rate

 

The components of income tax benefit from operations are as follows:

 

  

Year Ended June 30,

 

(In thousands)

 

2022

  

2021

 

Current

        

Federal

 $—  $— 

State and local

  —   — 

Total current tax benefit

 $—  $— 

Deferred

        

Federal

  —   — 

State and local

  —   — 

Total deferred tax benefit

 $—  $— 

Total tax benefit

 $—  $— 

 

A reconciliation of the reported income tax benefit to the amount that would result by applying the U.S. Federal statutory rate to the loss before income taxes to the actual amount of income tax benefit recognized follows:

 

  

Year Ended June 30,

 

(In thousands)

 

2022

  

2021

 

Expected benefit

 $1,749  $1,596 

State tax expense

  —   — 

Tax credits

  166   187 

Change in valuation allowance

  (1,511)  (1,352)

Loan forgiveness - PPP loan

  —   114 

Stock-based compensation

  (306)  (36)

Prior year true-up

  (9)  26 

Expiration of net operating loss carryovers

  (89)  (533)

Other permanent items

  —   (2)

Total income tax benefit

 $—  $— 

 

Deferred Tax Assets and Liabilities

 

The Company’s deferred tax assets as of June 30, 2022 and 2021 consist of the following:

 

  

Year Ended June 30,

 

(In thousands)

 

2022

  

2021

 

Deferred tax assets:

        

Net operating loss carryforwards

 $17,202  $15,882 

Tax credit carryforwards

  1,330   1,165 

Lease liability - current and non-current

  113   62 

Accrued expenses and other timing

  180   65 

Stock-based compensation

  579   676 

Property and equipment, principally due to differences in depreciation

  —   77 

Total gross deferred tax assets

 $19,404  $17,927 

Less — valuation allowance

  (19,348)  (17,875)

Net deferred tax assets

 $56  $52 

Deferred tax liabilities:

        

Right-of-use assets

 $(34) $(52)

Property and equipment, principally due to differences in depreciation

  (22)  — 

Total gross deferred tax liabilities

  (56)  (52)

Net deferred tax assets

 $—  $— 

 

The Company files consolidated returns for federal, California, Florida, and Texas income and franchise taxes. In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the net deferred tax assets will be utilized to offset future tax liabilities. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of June 30, 2022, the Company provided a full valuation allowance of approximately $19.3 million against its net deferred tax assets.

 

The valuation allowance increased by approximately $1.5 million for the year ended June 30, 2022. Since the Company reflects a full valuation allowance against its deferred tax assets, there has been no income tax impact from these changes. The Tax Cuts and Jobs Act enacted on December 22, 2017 repealed the alternative minimum tax ("AMT") and any available AMT credit will be refunded according to the guidelines of the Tax Cuts and Jobs Act. The AMT credit is limited to 50% of the available balance each year for tax years 2018 to 2020 and any remaining balance is fully refundable for tax year 2021. The CARES Act enacted on March 27, 2020 included the acceleration of the AMT credit and allows for the acceleration of the refundable AMT credit up to 100% of the AMT credit. As a result, the Company received a $429 thousand AMT credit refund in the 2021 tax year. The Company has no further alternative minimum tax refund receivable as of June 30, 2022.

 

At June 30, 2022, the Company had net operating loss carryforwards of approximately $80.5 million with approximately $38.2 million ($8.0 million, tax effected) for federal income tax purposes that are available to offset future regular taxable income set to expire between the years of 2023 and 2037. The Company also had net operating loss carryforwards with indefinite lives of approximately $42.3 million ($8.9 million, tax effected) for federal income tax purposes that are available to offset future regular taxable income. For net operating losses with indefinite carryforward lives, generated beginning after December 31, 2017, the Tax Cuts and Jobs Act limits the amount of net operating losses to be utilized and deducted by the taxpayer to 80% of the taxpayer’s taxable income. Utilization of some of these net operating losses is limited due to the changes in stock ownership of the Company associated with the October 2007 Exchange Offer; as such, the benefit from these losses may not be realized.

 

The Company has federal research and development income tax credit carryovers of $1.0 million as of June 30, 2022. These credits will expire between the years 2035 and 2042.

 

At June 30, 2022, the Company also has accumulated state net operating loss carryforwards of approximately $7.4 million ($0.3 million, tax effected) that are available to offset future state taxable income. These net operating loss carryforwards expire between the years 2026 and 2036. These losses may also be subject to utilization limitations; as such, the benefit from these losses may not be realized.

 

Loss carryovers are generally subject to modification by tax authorities until three years after they have been utilized.

 

The Company has a temporary credit for business loss carryovers that may be utilized to offset its Texas margin tax. At June 30, 2022, the credit amount is $0.5 million ($0.4 million, tax effected). These credits may be used to offset $13 thousand of state tax liability each year and will expire in 2027.

 

Uncertain Tax Positions

 

The Company had unrecognized tax benefits of $400 thousand as of June 30, 2022, all of which have been accounted for as contra deferred tax assets. A rollforward of the beginning and ending amount of unrecognized tax benefits from  July 1, 2021 to June 30, 2022 is as follows:

 

  

Year Ended June 30,

 

(In thousands)

 

2022

  

2021

 

Fiscal year beginning balance

 $329  $— 

Additions for tax positions of current period

  71   80 

Additions for tax positions of prior years

  —   249 

Decreases for tax positions of prior years

  —   — 

Fiscal year ending balance

 $400  $329 

 

The Company recognizes interest and penalties related to income tax matters in income tax expense, as incurred. For the years ended June 30, 2022 and 2021, the Company did not recognize any interest expense for uncertain tax positions.