Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.21.1
INCOME TAXES
12 Months Ended
Dec. 31, 2020
INCOME TAXES  
12. INCOME TAXES

12. INCOME TAXES

 

A reconciliation of income taxes at the U.S. Federal statutory rate to the benefit for income taxes is as follows:

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

Benefit at U.S. federal statutory rate

 

$ (15,907,195 )

 

$ (10,138,657 )

State taxes - deferred

 

 

(3,797,393 )

 

 

(2,010,517 )

Increase in valuation allowance

 

 

19,535,265

 

 

 

11,790,031

 

Research and development credits

 

 

(246,989 )

 

 

(115,086 )

Other

 

 

416,312

 

 

 

474,229

 

Benefit for income taxes

 

$ -

 

 

$ -

 

   

A summary of the Company’s deferred tax assets is as follows:

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

Federal and state net operating loss carryforwards

 

$ 59,114,928

 

 

$ 42,496,374

 

Federal and state research credits

 

 

921,577

 

 

 

630,516

 

Interest expense limitation carryforwards

 

 

2,911,508

 

 

 

-

 

Transaction costs

 

 

1,080,041

 

 

 

1,174,733

 

Deferred revenue

 

 

563,956

 

 

 

603,535

 

Accrued expenses and other

 

 

2,397,513

 

 

 

2,433,142

 

Total gross deferred tax assets

 

 

66,989,523

 

 

 

47,338,300

 

Less: valuation allowance for deferred tax assets

 

 

(66,989,523 )

 

 

(47,338,300 )

Net deferred tax assets

 

$ -

 

 

$ -

 

 

As of December 31, 2020, the Company had federal and state (post-apportioned basis) net operating losses (“NOLs”) of $239.8 million and $172.6 million, respectively, as well as federal research and development tax credit carryforwards of approximately $0.9 million. Approximately $115.8 million and $90.0 million of the foregoing federal and state NOLs, respectively, will expire at various dates from 2027 through 2040, if not limited by triggering events prior to such time. Under the provisions of the Internal Revenue Code, changes in ownership of the Company, in certain circumstances, would limit the amount of federal NOLs that can be utilized annually in the future to offset taxable income. In particular, Section 382 of the Internal Revenue Code imposes limitations on an entity’s ability to use NOLs upon certain changes in ownership. If the Company is limited in its ability to use its NOLs in future years in which it has taxable income, then the Company will pay more taxes than if it were otherwise able to fully utilize its NOLs. The Company may experience ownership changes in the future as a result of subsequent shifts in ownership of the Company’s capital stock that the Company cannot predict or control that could result in further limitations being placed on the Company’s ability to utilize its federal NOLs. As of December 31, 2020, the Company performed a preliminary analysis of limitations imposed by Section 382 of the Internal Revenue Code and determined no ownership changes occurred in the current year which would cause additional limitation on the use of the NOLs.

 

A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. When determining the amount of net deferred tax assets that are more likely than not to be realized, the Company assesses all available positive and negative evidence. This evidence includes, but is not limited to, prior earnings history, expected future earnings, carry-back and carry-forward periods and the feasibility of ongoing tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset. The weight given to the positive and negative evidence is commensurate with the extent the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income, exclusive of reversing taxable temporary differences, to outweigh objective negative evidence of recent financial reporting losses. Based on these criteria and the relative weighting of both the positive and negative evidence available, management continues to maintain a full valuation allowance against its net deferred tax assets.

In accordance with U.S. GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Derecognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets. The amount of the liability for which an exposure exists is measured as the largest amount of benefit determined on a cumulative probability basis that the Company believes is more likely than not to be realized upon ultimate settlement of the position. Components of the liability are classified as either a current or a long-term liability in the accompanying consolidated balance sheets based on when the Company expects each of the items to be settled. The Company does not have any unrecognized tax benefits as of December 31, 2020 and 2019, and does not anticipate a significant change in unrecognized tax benefits during the next 12 months.