Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.21.2
Income Taxes
12 Months Ended
Mar. 31, 2021
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, Maryland and North Carolina income tax.

 

Income tax expense (benefit) differed from the amounts computed by applying the statutory federal income tax rate of 21% to pretax income (loss) as a result of the following:

 

  

    Fiscal Years Ended March 31,  
    2021     2020  
             
Computed expected tax benefit     (21.00 )%     (21.00 )%
State income taxes, net of federal benefit     0.01 %     0.01 %
Tax effect of warrant modifications     - %     0.84 %
Tax effect of research and development credits     (1.45 )%     (1.60 )%
Tax effect of stock compensation     4.71 %     2.39 %
Tax effect of other non-deductible items     0.00 %     0.00 %
Expired net operating loss carryforwards     1.99 %     0.36 %
Change in valuation allowance (federal only)     15.74 %     19.02 %
                 
Income tax expense     0.00 %     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,  
    2021     2020  
Deferred tax assets:            
Net operating loss carryovers   $ 33,587,300     $ 30,607,500  
Basis differences in property and equipment     12,500       9,100  
Research and development credit carryforwards     2,589,000       2,256,400  
Stock based compensation     3,515,500       3,919,900  
Operating lease Right of Use asset     105,300       95,400  
Accruals and reserves     67,000       66,500  
                 
Total deferred tax assets     39,876,600       36,954,800  
                 
Valuation allowance     (39,876,600 )     (36,954,800 )
                 
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 $2,921,800 and $4,202,500 during the fiscal years ended March 31, 2021 and 2020, respectively.

 

As of March 31, 2021, we had U.S. federal net operating loss carryforwards of approximately $139,175,200. Federal net operating loss carryforwards of approximately $86,276,400 generated through our fiscal year ended March 31, 2018 will expire in our fiscal years ending March 31, 2022 through March 31, 2038. Federal net operating loss carryforwards of approximately $52,898,800 generated in fiscal years ending after March 31, 2018 will carry forward indefinitely, but are subject to an 80% taxable income limitation. As of March 31, 2021, we had state net operating loss carryforwards of approximately $64,556,500, which will expire in fiscal years ending in 2029 through 2041. We also have federal and state research and development tax credit carryforwards of approximately $2,415,500 and $1,311,900, respectively. The federal tax credits will expire at various dates beginning with our fiscal year ending March 31, 2029, unless previously utilized. The state tax credits do not expire and will carry forward indefinitely until utilized.

 

On March 27, 2020 the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) to provide economic relief in response to the coronavirus pandemic. The CARES Act, among other things, includes provisions to allow certain net operating losses to be carried-back up to five years, to increase interest deduction limitations, and to make technical corrections to tax depreciation methods for qualified improvement property. The CARES Act may affect the corporate income taxes imposed by state governments and may result in future responses by state legislatures, some of which could have retroactive effect. The Company evaluated the provisions of the CARES Act and determined that it did not have a material impact on the Company’s income tax accounts at March 31, 2021 or 2020.

 

On June 29, 2020, California Assembly Bill 85 (AB 85) was signed into law, suspending the use of California net operating losses and limiting the use of California research tax credits for tax years beginning in 2020 and before 2023. The suspension of net operating losses and the restriction of research tax credits did not result in a significant impact on the value of our deferred tax assets.

 

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 2002 through 2021 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, 2021 and 2020 relate entirely to research and development tax credits. The total amount of unrecognized tax benefits at March 31, 2021 and 2020 is $931,900 and $814,600, 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,  
    2021     2020  
             
Unrecognized benefit - beginning of period   $ 814,600     $ 668,700  
Current period tax position increases     117,300       146,000  
Prior period tax position increases (decreases)     -       (100 )
                 
Unrecognized benefit - end of period   $ 931,900     $ 814,600  

 

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, 2021 or 2020. We do not anticipate any significant changes of our uncertain tax positions within twelve months of this reporting date.