Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2020

13. Income Taxes

The Company has available approximately $234,261,000 and $252,259,000 of unused operating loss carryforwards for federal and state tax purposes, respectively, that may be applied against future taxable income. The NOL carryforwards will begin to expire in the year 2028 and research and development (R&D) credits will begin to expire in 2031 if not utilized prior to that date. The Company has evaluated the positive and negative evidence bearing upon the realizability of its net deferred tax assets. Based on the Company’s history of operating losses since inception, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, no provision for a deferred tax asset has been made for the tax benefits of the net operating loss carryforwards as the entire amount is offset by a valuation allowance. The valuation allowance increased by approximately $10,666,000 and $7,984,000 during the years 2020 and 2019, respectively, and was approximately $72,803,000 and $62,137,000 at December 31, 2020 and 2019, respectively.

The Internal Revenue Code of 1986, as amended (the “Code”) provides for a limitation of the annual use of net operating losses and other tax attributes (such as research and development tax credit carryforwards) following certain ownership changes (as defined by the Code) that could limit the Company’s ability to utilize these carryforwards. At this time, the Company has not completed a study to assess whether an ownership change under Section 382 of the Code has occurred, or whether there have been multiple ownership changes since the Company’s formation, due to the costs and complexities associated with such a study. The Company may have experienced various ownership changes, as defined by the Code, as a result of past financing transactions. Accordingly, the Company’s ability to utilize the aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, the Company may not be able to take full advantage of these carryforwards for federal or state income tax purposes.

The Company’s reserves related to taxes are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit. For the three years ended December 31, 2020, the Company had no unrecognized tax benefits or related interest and penalties accrued. The Company has not, as yet, conducted a study of R&D credit carryforwards. This study may result in an adjustment to the Company’s R&D credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s R&D credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if an adjustment were required. The Company would recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. The Company’s uncertain tax positions are related to years that remain subject to examination by relevant tax authorities. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.

The principal components of the Company’s deferred tax assets and liabilities are as follows:


	December 31,
	2020			2019
Deferred tax assets:
Net operating loss carryovers	$	65,989,759		$	56,646,542
Share-based compensation		2,265,006			1,770,295
R&D tax credits		3,833,265			3,149,249
Accrued compensation and severance		587,183			454,128
Lease liability		1,012,743			1,101,248
Intangible assets		98,915			110,178

Total deferred tax assets	$	73,786,871		$	63,231,640
Valuation allowance		(72,803,194	)		(62,136,614	)

Total deferred tax assets net of valuation allowance	$	983,677		$	1,095,026
Deferred tax liabilities:
Right-of-use asset		(832,477	)		(909,271	)
Depreciation		(151,200	)		(185,755	)

Total deferred tax liabilities	$	(983,677	)	$	(1,095,026	)

Net deferred tax asset (liability)	$	—		$	—

A reconciliation of the statutory U.S. Federal rate to the company’s effective tax rate is as follows:


	Year Ended December 31,
	2020			2019			2018
Federal income tax benefit at s t atutory rate		(21.00	)%		(21.00	)%		(21.00	)%
State income tax, net of federal benefit		(9.09	)		(15.09	)		(5.64	)
Permanent items including change in fair value of warrants		(5.35	)		(21.87	)		4.80
Change in valuation allowance		37.88			62.56			23.95
R&D tax credits		(2.43	)		(4.72	)		(2.11	)
Other		(0.01	)		0.12			—

Effective income tax (benefit) expense rate		0	%		0	%		0	%

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details