Transition report pursuant to Rule 13a-10 or 15d-10

Income Taxes

v3.21.1
Income Taxes
9 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 12 — INCOME TAXES

 

A reconciliation of the statutory income tax rates and the Company’s effective tax rate is as follows:

 

    December 31, 2020     March 31, 2020  
Statutory federal income tax rate     21.0 %     21.0 %
State taxes, net of federal tax benefit     2.5 %     2.0 %
Non-deductible expenses     (0.5 )%     (0.2 )%
Tax credit     (2.8 )%     7.1 %
Change in fair value of warrant liability     (8.9 )%     %
True-up     (1.1 )%     (7.6 )%
Change in valuation allowance     (10.3 )%     (22.6 )%
Income taxes provision     (0.1 )%     (0.3 )%

 

Income tax expense for the nine months ended December 31, 2020 and year ended March 31, 2020 consisted of the following:

 

    December 31, 2020     March 31, 2020  
Current                
Federal   $     $  
State     1,000       4,000  
Total current provision     1,000       4,000  
Deferred                
Federal     (1,634,000 )     (346,000 )
State     (384,000 )     (55,000 )
Total deferred benefit     (2,018,000 )     (401,000 )
Change in valuation allowance     2,017,000       401,000  
Total provision for income taxes   $     $ 4,000  

 

The components of deferred tax assets and liabilities are as follows:

 

    December 31, 2020     March 31, 2020  
Deferred tax assets:                
Net operating loss   $ 28,914,000     $ 8,127,000  
Research and development credits     5,464,000       2,012,000  
Accrued expenses     292,000       348,000  
Patent     422,000        
Impairment loss     361,000        
Stock compensation     2,654,000        
Other     84,000       56,000  
Total deferred income tax assets     38,191,000       10,543,000  
                 
Deferred tax liabilities:                
Fixed assets     44,000       (9,000 )
Intangible assets     (18,000 )     (22,000 )
Total deferred income tax liabilities     26,000       (31,000 )
                 
Net deferred income tax assets     38,217,000       10,512,000  
Valuation allowance     (38,217,000 )     (10,512,000 )
Net deferred tax asset   $     $  

 

Based on the available objective evidence, including the Company’s history of cumulative losses, management believes it is likely that the net deferred tax assets will not be realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at December 31, 2020 and March 31, 2020.

 

At December 31, 2020, the Company has federal and state net operating loss carryforwards of approximately $111,400,000 and $82,500,000, respectively, which are available to offset future taxable income. Federal and State carryovers began to expire in 2019. As a result of the May 2020 reverse recapitalization an ownership change has occurred. The Company has not completed an Internal Revenue Code Section 382 analysis. As a result, there could be substantial limitations on the Company’s ability to utilize its pre-ownership change net operating loss and tax credit carryforwards. These substantial limitations may result in both a permanent loss of certain tax benefits related to net operating loss carryforwards and federal research and development credits, and an annual utilization limitation. Due to the full valuation allowance already in place, the Company does not anticipate any change in the Company’s effective tax rate.

 

The Company also has research and development credit carryforwards for federal and state tax purposes of approximately $3,800,000 and $1,700,000, respectively. The research and development credit carryforwards began to expire in 2019 for federal tax purposes and have an indefinite life for state tax purposes.

 

The Company files income tax returns in the U.S. federal jurisdiction and in various states. The Company’s federal income tax returns for the years 2016 and beyond remain subject to examination by the Internal Revenue Service. The Company’s California income tax returns for the years 2015 and beyond remain subject to examination by the California Franchise Tax Board. In addition, all of the net operating losses, research and development credit and other tax credit carryforwards that may be used in future years are still subject to adjustment.

 

Generally accepted accounting principles clarify the accounting for uncertainty in income taxes recognized in the Company’s financial statements and prescribe thresholds for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provide guidance on de-recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company adopted these provisions effective April 1, 2009.

 

The Company did not have any unrecognized tax benefits as of December 31, 2020 and March 31, 2020 and does not expect this to change significantly over the next 12 months. In accordance with generally accepted accounting principles, the Company will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2020, the Company has not accrued any interest or penalties related to uncertain tax positions.