Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.19.2
Income Taxes
12 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

The provision for income taxes for the periods presented in the Consolidated Statements of Operations and Comprehensive Loss represents minimum California franchise tax and North Carolina income tax.

 

On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted into law, significantly changing the fundamentals of U.S. corporate income taxation by, among many other things, reducing the U.S. federal corporate income tax rate to 21%, converting to a territorial tax system, and creating various income inclusion and expense limitation provisions. The reduction of the U.S. federal statutory tax rate from 34% to 21% became effective January 1, 2018. Income tax expense for the fiscal year ended March 31, 2018 was computed by applying the U.S. federal income tax rate of 34% for April 1, 2017 to December 31, 2017 and 21% for January 1, 2018 to March 31, 2018 (prorated basis 30.75%) to pretax losses. Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 21% and the prorated rate of 30.75% for the fiscal years ended March 31, 2019 and 2018, respectively, to pretax losses as a result of the following:

 

 

    Fiscal Years Ended March 31,
    2019   2018
         
Computed expected tax benefit     (21.00 )%     (30.75 )%
Tax effect of warrant modifications and other non-deductible items     0.74 %     0.40 %
Tax effect of research and development credits     (1.92 )%     (1.44 )%
Effect of U.S. tax law change (federal and state)     —   %     88.09 %
Other losses not benefitted     22.19 %     (56.28 )%
Other     —   %     —   %
Income tax expense     0.01 %     0.02 %

 

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows:

 

    March 31,
    2019   2018
Deferred tax assets:                
Net operating loss carryovers   $ 27,190,900     $ 21,402,600  
Basis differences in fixed assets     (2,700 )     (7,600 )
Stock based compensation     3,516,600       2,504,500  
Accruals and reserves     2,047,500       1,352,900  
Total deferred tax assets     32,752,300       25,252,400  
Valuation allowance     (32,752,300 )     (25,252,400 )
Net deferred tax assets   $ —       $ —    

 

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $7,499,900 and decreased by $9,529,300 during the fiscal years ended March 31, 2019 and 2018, respectively.

 

At March 31, 2019 we had U.S. federal net operating loss carryforwards of approximately $109,032,500, which will expire in fiscal years 2020 through 2038.  At March 31, 2019, we had state net operating loss carryforwards of approximately $63,574,300, which will expire in fiscal years 2029 through 2039. Federal net operating losses incurred in our fiscal year ended March 31, 2019 and thereafter will not expire. We also have federal and state research and development tax credit carryforwards of approximately $1,624,700 and $1,049,500, respectively. The federal tax credits will expire at various dates beginning in the year 2029, unless previously utilized. The state tax credits do not expire and will carry forward indefinitely until utilized.

 

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to provide guidance for companies that are not able to complete their accounting for the income tax effects of the Tax Act in the period of enactment. SAB 118 provides for a measurement period of up to one year from the date of enactment. During the measurement period, companies need to reflect adjustments to any provisional amounts if it obtains, prepares or analyzes additional information about facts and circumstances that existed as of the enactment date that, if known, would have affected the income tax effects initially reported as provisional amounts.

 

At March 31, 2019 we have completed our analysis of the Tax Act. The Act required us to re-measure our net U.S. deferred tax assets reducing the U.S. federal corporate rate to 21%, which was offset by our valuation allowance. During our fiscal year ended March 31, 2019, this amount was finalized and no additional adjustment was required to be made due to the change in corporate tax rate.

 

Also effective for our fiscal year ended March 31, 2019 is a new Global Intangible Low-Taxed Income inclusion (GILTI). The GILTI income inclusion did not impact our current loss and valuation allowance as our Canadian subsidiary is an inactive entity. The Company has elected to account for GILTI as a period cost in the year the income or tax is incurred.

 

U.S. federal and state tax laws include substantial restrictions on the utilization of net operating loss carryforwards in the event of an ownership change of a corporation. We have not performed a change in ownership analysis since our inception in 1998 and accordingly some or all of our net operating loss carryforwards may not be available to offset future taxable income, if any.

 

We file income tax returns in the U.S. federal, Canada and various U.S. state jurisdictions. We are subject to U.S. federal and state income tax examinations by tax authorities for tax years 1998 through 2018 due to net operating losses that are being carried forward for tax purposes, but we are not currently under examination by tax authorities in any jurisdiction.

 

Uncertain Tax Positions

 

Our unrecognized tax benefits at March 31, 2019 and 2018 relate entirely to research and development tax credits. The total amount of unrecognized tax benefits at March 31, 2019 and 2018 is $668,700 and $451,600, respectively. If recognized, none of the unrecognized tax benefits would impact our effective tax rate. The following table summarizes the activity related to our unrecognized tax benefits.

 

    Fiscal Years Ended March 31,
    2019   2018
         
Unrecognized benefit - beginning of period   $ 451,600     $ 290,500  
Current period tax position increases     210,100       102,300  
Prior period tax position increases     7,000       58,800  
Unrecognized benefit - end of period   $ 668,700     $ 451,600  

 

Our policy is to recognize interest and penalties related to income taxes as components of interest expense and other expense, respectively. We incurred no interest or penalties related to unrecognized tax benefits in the years ended March 31, 2019 or 2018. We do not anticipate any significant changes of our uncertain tax positions within twelve months of this reporting date.