The Company provides for income taxes under ASC 740. Under ASC 740, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The Company has not recorded a current or deferred income tax expense or benefit since its inception.

The Company’s loss before income taxes was $29.0 million and $22.0 million for the years ended March 31, 2021 and 2020, respectively, and was generated entirely in the United States. Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets are comprised of the following:

	March 31,
	2021			2020
Net operating loss carryforward	$	20,123,621		$	14,562,024
Research and development credit carryforward		1,164,895			1,804,233
Orphan Drug Credit		2,002,559			—
Stock options - NQSOs		5,267,351			5,877,971
Accruals and other temporary differences		595,418			825,696
Gross deferred tax assets		29,153,844			23,069,924
Deferred tax valuation allowance		(29,153,844	)		(23,069,924	)
Net deferred taxes	$	—		$	—

Based on the Company’s history of operating losses since inception and consideration of available positive and negative evidence, the Company has concluded that it is not more likely than not that the benefit of its deferred tax assets will be realized. Accordingly, the Company continues to maintain a full valuation allowance against its net deferred tax assets as of March 31, 2021. The valuation allowance increased by $6.1 million for the year ended March 31, 2021 primarily due to the increase in the net operating loss carryforward and Orphan Drug credit.

A reconciliation of income tax benefit computed at the statutory federal income tax rate to income taxes as reflected in the financial statements is as follows:

	Year Ended
	March 31,
	2021			2020
U.S. statutory income tax rate		21.00	%		21.0	%
Permanent differences		(0.02	)%		3.30	%
Tax credit carryforwards		4.70	%		4.40	%
Valuation allowance		(20.98	)%		(28.70	)%
Stock compensation		(3.41	)%		—
Warrants		(1.29	)%		—
Effective tax rate		—	%		—	%

As of March 31, 2021, the Company had gross U.S. federal net operating loss carryforwards of approximately $95.8 million, which may be available to offset future income tax liabilities and will begin to expire at various dates starting in 2033. As of March 31, 2021, none of the Company’s state net operating losses have value due to the apportionment rule in the states where state income tax returns are currently filed. As permitted under the Protecting Americans Against Tax Hikes Act, which allows the Research and Development tax credit to be applied to Form 941 quarterly payroll tax returns, the Company reduced payroll taxes by $177 thousand and $170 thousand for the years ended March 31, 2021 and March 31, 2020, respectively. As of March 31, 2021, the Company had gross federal research and development tax credit carryforwards of $1.7 million, available to reduce future tax liabilities which will begin to expire at various dates starting in 2030.

Under the provisions of the Internal Revenue Code, the net operating loss (“NOL”) carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of a 50% cumulative change in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, as well as similar state tax provisions. This could limit the amount of NOLs that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed several financing transactions since its inception which may have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code, or could result in a change in control in the future.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Year Ended March 31,
	2021			2020
Gross unrecognized tax benefits at beginning of year	$	318,394		$	126,838
Increases (decreases) for tax positions in prior period		(99,063	)		70,293
Increase for tax positions in current period		339,631			121,263
Gross unrecognized tax benefits at end of year	$	558,962		$	318,394

As of March 31, 2021, the Company had $559,000 of unrecognized tax benefits, which were offset with the net operating loss and valuation allowance on the consolidated balance sheets. None of the gross unrecognized tax benefits would affect the effective tax rate at March 31, 2021, if recognized. In addition, the Company did not record any penalties or interest related to uncertain tax positions for the periods presented in these consolidated financial statements. The Company does not have any positions for which it is reasonably possible that there will be significant increase or decrease in the amounts of unrecognized tax benefits within twelve months of the reporting date.

The Company files income tax returns in the United States, and various state jurisdictions. The federal and state income tax returns are generally subject to tax examinations for the period January 1, 2017 through March 31, 2021. To the extent 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 tax authorities to the extent utilized in a future period.