Note 8 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

8.  Income Taxes

Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which differences are expected to reverse.  

Significant components of the Company's deferred tax assets for federal income taxes consisted of the following:

Deferred tax assets	December 31, 2021			December 31, 2020
Net operating loss carryforwards	$	6,033,726		$	3,864,189
Stock option compensation		1,641,354			1,571,227
Orphan Drug credits		647,937			541,384
Lease liability		—			38,394
Capitalized start-up costs and other		12,403,925			10,709,631
Valuation allowance		(20,726,942	)		(14,906,646	)
Deferred tax assets		—			1,818,179
Deferred tax liabilities
Intangible assets		—			(2,223,678	)
Right of use asset		—			(38,394	)
Deferred tax liabilities		—			(2,262,072	)
Net deferred tax liability	$	—		$	(443,893	)

The Company does not have unrecognized tax benefits as of December 31, 2021 or December 31, 2020. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

The Company had NOL carryforwards for federal and state income tax purposes at December 31, 2021 and 2020 of approximately:

Combined NOL Carryforwards:	December 31, 2021		December 31, 2020
Federal	$	23,442,045	$	15,013,388
State		23,436,624		15,007,966

The pre-2018 net operating loss carryforwards begin expiring in 2021 for both federal and state income tax purposes. In November 2019, the Company increased the number of shares outstanding resulting in a change of ownership, under the provisions of Internal Revenue Code Section 382 and similar state provisions. These provisions limit the Company’s ability to utilize these net operating loss carryforwards to offset future income. The amounts above reflect the amount of NOLs that the Company expects to be able to utilize as a result of the limitation. The Company recorded a 100% valuation allowance of the deferred tax assets as of December 31, 2021 because of the uncertainty of their realization.

A reconciliation of income tax benefit at the statutory federal income tax rate and income taxes as reflected in the consolidated financial statements is as follows:

Rate reconciliation:	December 31, 2021			December 31, 2020
Federal tax benefit at statutory rate		(21.0	)%		(21.0	)%
State tax, net of Federal benefit		(4.7	)%		(4.7	)%
Orphan drug credit		(0.4	)%		(2.9	)%
Change in valuation allowance		24.3	%		18.1	%
Total provision		(1.8	)%		(10.5	)%

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company’s 2018 to 2021 tax years remain open and subject to examination. All net operating losses and credits remain subject to review until utilized.