NOTE 18: INCOME TAXES

The Company has no income tax expense due to operating losses incurred for the years ended December 31, 2019 and 2018.

The effects of temporary differences that give rise to significant portions of the deferred tax assets as of December 31, 2019 and 2018 are as follows:


	For the Years Ended
	December 31,
	2019		2018
Deferred Tax Assets:
Net Operating Loss Carry Forward	$	17,166,000	$	13,596,000
Stock-Based Compensation		6,538,000		5,741,000
License Agreements		177,000		206,000
Research and Development		733,000		406,000
Charitable Contributions		9,000		3,000
Operating Lease Liability		115,000		—
		24,738,000		19,952,000
Less: Valuation Allowance		(24,632,000)		(19,952,000)
Total Deferred Tax Assets		106,000		—

Deferred Tax Liabilities
Fixed Assets		(106,000)		—

Total Deferred Tax Liabilties		(106,000)		—

Net Deferred Tax Assets/(Liabilities)	$	—	$	—

The Company assesses the likelihood that deferred tax assets will be realized. To the extent that realization is not likely, a valuation allowance is established. Based upon the history of losses, management believes that it is more likely than not that future benefits of deferred tax assets will not be realized and has established a full valuation allowance for the years ended December 31, 2019 and 2018. The valuation allowance increased by $4.7 million as of December 31, 2019. The Company has research and development tax credit carryforwards of $730,000 available to offset future federal income taxes. The research and development tax credit carryforwards begin to expire in 2030.

The Company has approximately $73.8 million of federal and $47.4 million of state Net Operating Losses (“NOL”s) that may be available to offset future taxable income, if any. The federal net operating loss carryforwards of $41.9 million, if not utilized, will expire between 2029 and 2037. The federal net operating loss carryforwards of $31.9 million generated in 2018 and thereafter are subject to an 80% limitation on taxable income, do not expire and will carry forward indefinitely. The state net operating loss carryforwards of $21.9 million, if not utilized, will begin to expire in 2035. The state net operating loss carryforwards of $25.5 million generated in 2018 and thereafter are subject to an 80% limitation on taxable income, do not expire and will carry forward indefinitely.

In accordance with Section 382 of the Internal Revenue code, the usage of the Company’s net operating loss carryforwards may be limited in the event of a change in ownership. A full Section 382 analysis has not been prepared and NOLs could be subject to limitation under Section 382.

The Company’s income tax returns for 2015 to 2018 are still open and subject to audit. In addition, net operating losses arising from prior years are also subject to examination at the time they are utilized in future years.

For the years ended December 31, 2019 and 2018, the expected tax expense (benefit) based on the U. S. federal statutory rate is reconciled with the actual tax provision (benefit) as follows:


	For the Years Ended December 31,
	2019				2018
			Percent of				Percent of
		Amount	Pretax Income/(Loss)			Amount	Pretax Income/(Loss)
U.S. federal statutory rate	$	(4,500,000)	21.00	%	$	(31,071,000)	21.00	%
State taxes, net of federal benefit		(600,000)	2.80	%		(1,383,000)	0.93	%
Tax rate change		665,000	(3.10)	%		—	0.00	%
Permanent Differences
- Non-deductible write-off of acquired R&D expenses		—	0.00	%		24,369,000	(16.47)	%
- Change in fair value of derivative liabilities		(4,000)	0.02	%		8,000	(0.01)	%
- Other permanent differences		32,000	(0.15)	%		4,000	0.00	%
Change in valuation allowance		4,681,000	(21.85)	%		8,073,000	(5.46)	%
Deferred true-up		(274,000)	1.28	%		—	0.00	%
Income tax provision/(benefit)	$	—	0.00	%	$	—	0.00	%

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. As of December 31, 2019, and 2018, there were no unrecognized tax benefits. The Company recognizes accrued interest and penalties as income tax expense. No amounts were accrued for the payment of interest and penalties at December 31, 2019 and 2018. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position in the next year.