Income Taxes

12 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

16. Income Taxes

The Company has not recognized any income tax provisions for the fiscal years ended June 30, 2023 and 2022. The U.S. federal corporate statutory rate of 21.0% is the only applicable corporate tax rate used for fiscal years ended June 30, 2023 and 2022. The statutory rate differs from the Company’s computed expected tax recovery rate due to the following adjustments for the fiscal years ended June 30:

	2023			2022
Net loss before taxes	$	(21,338,207	)	$	(33,539,962	)
Statutory rate		21	%		21	%
Computed expected tax recovery		(4,481,024	)		(7,043,392	)
Section 162(m) adjustments		–			2,264,757
Other permanent tax differences		(5,107	)		83,623
Adjustments to net operating loss		113,966			(2,832,937	)
Change in unrecognized tax benefits		(8,495,803	)		6,164,291
Change in valuation allowance		12,867,968			1,382,301
Income tax provision	$	–		$	–

As of June 30, 2023, the Company had accumulated $93.3 million of net operating loss (NOL) carryforwards offset taxable income in future years. The Company currently has $7.1 million of unused NOL carryforwards that are set to begin to expire in 2036 to 2038, with the remainder of $86.2 million do not have an expiration date. The Company files U.S. income tax returns with varying statutes of limitations. The tax returns for fiscal years ended September 30, 2016, to June 30, 2023, remain open to examination due to the Company’s NOL carryforward deferred tax asset. The Company is not under examination by any tax authority as of June 30, 2023.

We believe that it is more likely than not that the benefit from certain NOL carryforwards will not be realized. At June 30, 2023 and 2022, respectively, we have provided a valuation allowance of $21.0 and $8.2 million on the deferred tax assets recorded to date. If our assumptions change and we determine that we will be able to realize these NOL carryforward amounts, the Company will adjust its disclosures appropriately. 

The significant components of deferred income tax assets and liabilities at June 30, after applying the statutory corporate income tax rate, are as follows for the fiscal years ended June 30:

	2023			2022
Net operating losses	$	19,365,174		$	8,174,021
Stock-based compensation		982,521			–
Section 174 capitalization		679,037			–
Other temporary differences		15,258			–
Valuation allowance		(21,041,989	)		(8,174,021	)
Net deferred tax asset	$	–		$	–

Under the Tax Cuts and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S. tax purposes effective for fiscal years beginning after January 1, 2022. The mandatory capitalization requirement increases our deferred tax assets and is fully offset with the valuation allowance.

The Company has recorded uncertain tax positions (“UTP”) that result in unrecognized tax benefits recorded on the books of the Company. The unrecognized tax benefits for the Company are as follows as of June 30:

	2023			2022
Unrecognized tax benefits, beginning of period	$	8,715,253		$	2,550,962
Decrease during the period		(8,715,253	)		–
Increase during the period		219,450			6,164,291
Unrecognized tax benefits, end of period	$	219,450		$	8,715,253

At June 30, 2022, the Company recorded an UTP related to shares issued to service providers during open tax years. The Company has since filed all necessary tax returns and has paid approximately $75,000 in penalties and interest remediating past-due payroll tax requirements, for which the Company had accrued at June 30, 2022. At June 30, 2023, the Company has no remaining UTP recorded in relation to shares issued for services.

The Company recognizes that it may be subject to provisions of Section 162(m) of the Internal Revenue Code, which limits the deductibility of compensation paid to certain executive officers in excess of $1.0 million in any fiscal year. The Company continues to evaluate whether any amended income tax returns are necessary for fiscal years for which it has already filed. The Company intends to immediately remedy any such uncertainty of tax benefit in the coming fiscal year. The Company has not accrued for any penalties or interest in relation to any potential 162(m) UTP adjustment at June 30, 2023 and 2022.

Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, the Company’s ability to utilize carryforwards and other tax attributes such as foreign tax credits, in any taxable fiscal year may be limited if the Company experiences, or has experienced, an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders, who own at least 5% of the Company’s stock, increase their ownership percentage by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. The Company may, in the future experience one or more additional Section 382 “ownership changes.

The Company files U.S. and state income tax returns with varying statutes of limitations. The tax returns for fiscal years ended September 30, 2016, to June 30, 2023, remain open to examination due to the carryover of unused NOL carryforwards and tax credits. The Company is not under examination by any tax authority as of June 30, 2023.