Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes
12 Months Ended
Jun. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

Note 9. Income Taxes


The reconciliation of the U.S. federal statutory rate (21%) to the Company’s effective tax rate for the year ended June 30, 2021 and for the period from April 23, 2020 (inception) to June 30, 2020 is as follows:


    2021     2020  
U.S. statutory federal income tax rate     21.0 %     21.0 %
Permanent differences     0.0 %     0.0 %
Fair Value Adjustment - Warrants     -18.5 %     0.0 %
Change in valuation allowance     -2.5 %     -21.0 %
Effective tax rate     0.0 %     0.0 %


The significant components of the Company’s deferred tax assets consist of the following at June 30, 2021 and 2020:


    June 30,  
    2021     2020  
Deferred tax assets:                
Net operating loss carryforwards     497,171       -  
Other assets     281,137          
Stock based compensation     19,644       34,927  
Gross deferred tax assets     797,952       34,927  
Valuation allowance     (797,952 )     (34,927 )
Total deferred tax assets, net of valuation allowance     -       -  


The Company did not record a benefit for income taxes. ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based upon the level of historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences, and as a result the Company continues to maintain a valuation allowance for the full amount of the 2021 deferred tax assets. The valuation allowance increased by $763,025 for the year ended June 30, 2021. The increase in the 2021 valuation allowance is primarily attributable to the current year loss.


As of June 30, 2021, the Company had federal net operating losses of approximately $2,367,000 which are available to offset future taxable income. These net operating loss carryforwards will carryforward indefinitely but are subject to annual taxable income limitations in the year of utilization.


Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. Generally, an ownership change occurs when certain shareholders increase their aggregated ownership by more than 50 percentage points over their lowest ownership percentage in a testing period (typically three years). The Company has not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since becoming a “loss corporation” as defined in Section 382. Future changes in stock ownership, which may be outside of the Company’s control, may trigger an ownership change. In addition, future equity offerings or acquisitions that have an equity component of the purchase price could result in an ownership change. If an ownership change has occurred or does occur in the future, utilization of the NOL carryforwards or other tax attributes may be limited, which could potentially result in the expiration of a portion of the federal and state net operating losses and tax credit carryforwards before utilization, the reduction of the Company’s gross deferred tax assets and corresponding valuation allowance, and increased future tax liability to the Company.


The Company has no unrecognized tax benefits. Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expenses in the accompanying statements of operations. At June 30, 2021 and 2020, the Company had no accrued interest or penalties related to uncertain tax positions.


Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal tax authorities for all tax years in which a loss carryforward is available. The statute of limitations for assessment by federal and state tax jurisdictions in which the Company has business operations is open for tax years ending June 30, 2020 and after.