Income Taxes

12 Months Ended

Jun. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

The table below summarizes the Company’s provision for income taxes for the years indicated.

	Year Ended June 30,
In thousands	2020		2019
Current tax expense:
Federal	$	—	$	—
State		83		76
Total current tax expense		83		76
Deferred tax expense:
Federal		—		—
State		—		—
Total deferred tax expense		—		—
Provision for income taxes	$	83	$	76

Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The table below summarizes the significant components of the Company’s deferred tax assets (liabilities).

	June 30,
In thousands	2020			2019
Deferred tax assets:
Net operating loss carryforwards	$	30,077		$	20,526
Tax credit carryforwards		29,557			25,501
Lease liabilities - operating		1,314			—
Accruals and other		3,644			3,513
Depreciation and amortization		317			238
Gross deferred tax assets		64,909			49,778
Deferred tax asset valuation allowance		(64,032	)		(49,778	)
Total deferred tax assets, net of valuation allowance		877			—
Deferred tax liabilities:
Right-of-use assets - operating leases		(877	)		—
Total deferred tax liabilities		(877	)		—
Net deferred tax asset (liability)	$	—		$	—

As of June 30, 2020, the Company had federal and state net operating losses of approximately $24.8 million and $5.8 million (tax effected), respectively, that may be applied against future taxable income and expire in various years ranging from 2022 to 2039 and federal net operating losses of $96.5 million that do not expire. As of June 30, 2020, the Company also had federal and state research and development tax credits of approximately $28.9 million and $0.9 million, respectively, which may provide future tax benefits and expire in various years ranging from 2027 to 2049.

The Company evaluated the positive and negative evidence bearing on the realizability of its deferred tax assets. Based on its history of operating losses, the Company concluded that, as of both June 30, 2020 and 2019, it was more likely than not that the benefits of its deferred tax assets would not be realized. Therefore, any tax benefits to be realized in future years as a result of the utilization of the Company’s net operating loss and tax credit carryforwards, computed based on statutory federal and state rates, were completely offset by valuation allowances on those dates. The Company’s valuation allowances increased by $14.3 million and $7.6 million during the years ended June 30, 2020 and 2019, respectively, due primarily to net increases in federal net operating losses and, in 2019, equity adjustments as a result of adopting Topic 606 and its impact on deferred revenue.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act contains several significant provisions that affect corporations, including, among others, provisions addressing the use of net operating losses, interest deduction limitations and employer payroll tax payments (see Note 12 in these Notes to Financial Statements for further discussion of employer payroll taxes). Management does not believe that the CARES Act will have a material impact on the Company; however, management will continue to monitor ongoing developments, new regulations and interpretive guidance regarding such legislation and evaluate any potential impact on the Company’s overall business and tax position.

The items comprising the differences between the U.S. federal statutory income tax rate and the Company’s effective tax rate on the loss before provision for income taxes for the years indicated are summarized in the table below.

	Year Ended June 30,
	2020			2019
Federal income tax benefit at statutory rate		21	%		21	%
State income taxes, net of federal benefit		4			(3	)
Permanent differences-incentive share-based compensation		(1	)		(27	)
Permanent differences-transportation and travel		—			(9	)
Research and development tax credits		8			100
Rate change		—			14
Other		—			(9	)
Change in valuation allowance		(32	)		(91	)
Effective income tax rate		0	%		(4	)%

Under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the Company’s net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interests of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Code, respectively, as well as similar state provisions. This circumstance could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of any annual limitation would be determined based on the value of the Company immediately prior to the ownership change. Since its inception, the Company has completed several financings and sales of its common stock, which have resulted in a change in control as defined by Sections 382 and 383 of the Code. Subsequent ownership changes may further affect such limitation in future years. A full valuation allowance has been provided against the Company’s net operating loss and tax credit carryforwards and, if an adjustment were to be required, such an adjustment would reduce both the gross deferred tax asset established for the net operating loss and tax credit carryforwards and the valuation allowance.

Through the year ended June 30, 2020, the Company generated research and development credits but has not conducted a study to document the qualified activities. Such a study may result in an adjustment to the Company’s research and development tax credit carryforwards; however, until a study is completed and an adjustment, if any, is known, no amounts are being presented as an uncertain tax position as of June 30, 2020 or 2019. A full valuation allowance has been provided against the Company’s research and development tax credit carryforwards and, if an adjustment were to be required, such an adjustment would reduce both the gross deferred tax asset established for the research and development tax credit carryforwards and the valuation allowance.

The Company files income tax returns in the United States and in multiple states. The Company’s federal and state returns are generally subject to tax examination for the tax years ended June 30, 2016 through June 30, 2020. To the extent that the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state authorities if such attributes are utilized by the Company in a future period.

The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination. For the years ended June 30, 2020 and 2019, the Company increased its uncertain tax position reserve by $83,000 and $76,000, respectively, which amounts were entirely attributable to estimated interest and penalties in both years. The Company’s practice is to recognize interest and penalties related to uncertain tax positions in its provision for income taxes. As of June 30, 2020 and 2019, the Company’s aggregate reserve for uncertain tax positions was $2.1 million and $2.0 million, respectively. Included in those amounts were aggregate interest and penalties of $507,000 and $424,000 at June 30, 2020 and 2019, respectively. For each of the years ended June 30, 2020 and 2019, the Company’s gross unrecognized tax benefits, excluding interest and penalties, was unchanged at $1.6 million. If recognized, the entire amount of the uncertain tax position liability at June 30, 2020 would reduce the Company’s annual effective tax rate. It is reasonably possible that the Company’s gross unrecognized tax benefits as of June 30, 2020, which relate to certain state tax matters, will decline by approximately $1.6 million within the next twelve months due to the expiration of certain statutes of limitations. Any such decline would also affect the then-outstanding balance of accrued interest and penalties. The Company’s liability for uncertain tax positions is included in other long-term liabilities on its balance sheets.