RELMADA THERAPEUTICS, INC. Income Taxes Disclosure
NOTE 10 – INCOME TAXES
No provision or benefit for federal or state income taxes has been recorded because the Company has incurred net losses for all periods presented and has recorded a valuation allowance against its deferred tax assets.
The components of the Company’s deferred tax assets are as follows at:
| June 30, 2016 | June 30, 2015 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss | $ | 13,381,000 | $ | 9,818,000 | ||||
| Stock-based compensation | 168,000 | 61,000 | ||||||
| Research and development tax credits | 827,000 | 767,000 | ||||||
| Accruals | 67,000 | 46,000 | ||||||
| Other | 74,000 | 80,000 | ||||||
| Loss: valuation allowance | (14,517,000 | ) | (10,772,000 | ) | ||||
| Total | $ | - | $ | - | ||||
The Company has maintained a full valuation allowance against its deferred tax at June 30, 2016 and 2015. A valuation allowance is required to be recorded when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Since the Company cannot be assured of realizing the net deferred tax asset, a full valuation allowance has been provided. The valuation allowance increased for the years ended June 30, 2016 and 2015, by approximately $1,110,500 and $5,313,500, respectively.
At June 30, 2016, the Company had federal net operating loss carryforwards of approximately $39,164,000, which begin expiring in 2026. The Company also had federal research and development tax credit carryforwards of approximately $827,000 that will begin to expire in 2027. The United States Tax Reform Act of 1986 contains provisions that may limit the Company’s net operating loss carryforwards available to be used in any given year in the event of significant changes in the ownership interests of significant stockholders, as defined. The effect of an ownership change would be the imposition of an annual limitation on the use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate.
A reconciliation of the statutory tax rate to the effective tax rate is as follows:
| Year Ended June 30, 2016 | Year Ended June 30, 2015 | |||||||
| Statutory federal income tax rate | 34 | % | 34 | % | ||||
| State (net of federal benefit) | 6.0 | % | 6.6 | % | ||||
| Non-deductible expenses | 25 | % | (9.7 | )% | ||||
| Other | - | % | 0.6 | % | ||||
| Change in valuation allowance | (65 | )% | (31.5 | )% | ||||
| Effective income tax rate | 0 | % | 0 | % | ||||
The Company does not have any uncertain tax positions at June 30, 2016 and 2015 that would affect its effective tax rate. The Company does not anticipate a significant change in the amount of unrecognized tax benefits over the next twelve months. Because the Company is in a loss carryforward position, the Company is generally subject to US federal and state income tax examinations by tax authorities for all years for which a loss carryforward is available. If and when applicable, the Company will recognize interest and penalties as part of income tax expense.
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About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.