Annual report pursuant to Section 13 and 15(d)

Note 15 - Income Taxes

Note 15 - Income Taxes

12 Months Ended

Dec. 31, 2020

15.	Income Taxes

As of

December 31, 2020

and

2019,

our deferred tax assets (“DTAs”) were approximately

$45.8

million and

$43.6

million, respectively. The components of our deferred tax assets are summarized as follows:

	As of December 31,
	2020			2019
Deferred tax assets:
Net operating loss carryforwards	$	34,365,098		$	31,966,658
R&D credit carryforwards		9,301,709			9,150,580
AMT credit carryforward		—			310,620
Stock compensation		419,654			382,016
Intangibles		616,926			610,783
Disallowed interest expense		852,338			857,648
Temporary differences		267,312			333,728
Deferred tax assets before valuation allowance		45,823,037			43,612,033
Valuation allowance		(45,823,037	)		(43,301,413	)
Net deferred tax assets	$	—		$	310,620

Current accounting standards require a valuation allowance against DTAs if, based on the weight of available evidence, it is more likely than

not

that some or all of the DTAs

may

not

be realized. Due to the uncertainty surrounding the realization of these DTAs in future tax returns, all of the DTAs have been fully offset by a valuation allowance at

December 31, 2020

and

2019

except the alternative minimum tax (“AMT”) credit carryforward amount described below.

In assessing the realizability of DTAs, management considers whether it is more likely than

not

that some portion or all of the DTAs will

not

be realized. The ultimate realization of DTAs is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods) and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the DTAs are deductible, management believes it is more likely than

not

that the Company will

not

realize the benefits of these deductible differences or tax carryforwards as of

December 31, 2020.

The Tax Cuts and Jobs Act (the “Tax Act”) was signed into law on

December 22, 2017.

The Tax Act reduced the U.S. federal corporate tax rate from

35%

21%,

effective

January 1, 2018.

Consequently, we recorded a decrease related to DTAs of

$26.4

million with a corresponding net adjustment to a valuation allowance of

$26.4

million for the year ended

December 31, 2018.

The Tax Act repeals the AMT for corporations, and permits any existing AMT credit carryforwards to be used to reduce the regular tax obligation in

2018,

2019

and

2020.

Companies

may

continue using AMT credits to offset any regular income tax liability in years

2018

through

2020,

with

50%

of remaining AMT credits refunded in each of the

2018,

2019

and

2020

tax years, and all remaining credits refunded in tax year

2021.

This results in full realization of an existing AMT credit carryforward irrespective of future taxable income. Accordingly, the Company recorded AMT credit carryforwards of

$621,000

as of

December 31, 2019,

50%

of which was included in prepaid and other current assets, and

50%

of which was included in other noncurrent assets as of

December 31, 2019.

The CARES Act was signed into law on

March 27, 2020

and allowed an acceleration of the full remaining AMT credit carryforward. Accordingly, the Company filed for and received the refund of all

$621,000

of AMT credit carryforwards in

June 2020.

There are

remaining AMT credit carryforwards or corresponding DTAs recorded as of

December 31, 2020.

As of

December 31, 2020

and

2019,

we had U.S. net operating loss carryforwards of approximately

$153.3

million and

$142.2

million, respectively. Of those amounts,

$15.0

million relates to stock-based compensation tax deductions in excess of book compensation expense (“APIC NOLs”) as of

December 31, 2020,

that will be credited to additional paid-in capital when such deductions reduce taxes payable as determined on a "with-and-without" basis. Accordingly, these APIC NOLs will reduce federal taxes payable if realized in future periods, but NOLs related to such benefits are

not

included in the table above. As of

December 31, 2017,

we adopted ASU

2016

and thereby eliminated all APIC NOLs with a full offset to a valuation allowance.

As of

December 31, 2020

and

2019,

we also had state net operating loss carryforwards of approximately

$20.1

million. The state net operating loss carryforwards will begin expiring in

2032.

December 31, 2020

and

2019,

we had U.S. R&D credit carryforwards of approximately

$8.9

million and

$8.8

million, respectively.

There were

expirations of U.S. NOL carryforwards during

2020

2019.

U.S. R&D credit carryforwards of

$72,000

and

$130,000

expired during

2020

and

2019,

respectively.

The details of our U.S. net operating loss and federal R&D credit carryforward amounts and expiration dates are summarized as follows:

		As of December 31, 2020
Generated	Expiration	U.S. Net Operating Loss Carryforwards		U.S. R&D Credit Carryforwards
2001	2021	$	—	$	39,128
2002	2022		—		5,350
2003	2023		—		2,905
2004	2024		—		22,861
2005	2025		—		218,332
2006	2026		—		365,541
2007	2027		—		342,898
2008	2028		—		531,539
2009	2029		—		596,843
2010	2030		—		1,094,449
2011	2031		—		1,950,744
2012	2032		18,898,490		468,008
2013	2033		37,450,522		681,772
2014	2034		34,088,874		816,116
2015	2035		25,073,846		492,732
2016	2036		15,581,209		262,257
2017	2037		—		387,892
2018	2038		—		197,547
2019	N/A		11,245,808		213,065
2020	N/A		11,006,921		222,842
Total carryforwards		$	153,345,670	$	8,912,821

Under Sections

382

and

383

of the Internal Revenue Code (“IRC”) of

1986,

as amended, the utilization of U.S. net operating loss and R&D tax credit carryforwards

may

be limited under the change in stock ownership rules of the IRC. The Company completed a Section

382

analysis in

2020

and believes a Section

382

ownership change has occurred that would impact utilization of the Company's net operating loss and R&D tax credit carryforwards.

Reconciliations between the statutory federal income tax rate and our effective tax rate for continuing operations are as follows:

	2020						2019
	Amount			%			Amount			%
Benefit at statutory rate	$	(2,390,972	)		(21.0	)%	$	(2,299,122	)		(21.0	)%
Adjustments to valuation allowance		2,521,625			22.1	%		2,355,947			15.3	%
Adjustments to R&D credit carryforwards		(151,129	)		(1.3	)%		(82,706	)		6.1	%
Permanent items and other		20,476			0.2	%		26,588			0.3	%
Provision (benefit) per financial statements	$	—					$	707

See Note

(o).

- 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