Income Taxes

Current income tax expense (benefit) attributable to continuing operations was zero for the years ended December 31, 2019 and 2018.

The Company’s effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2019 and 2018.



	Years Ended December 31,
	2019		2018
Federal tax provision (benefit) rate	(21.0	)%	(21.0	)%
State tax provision, net of federal provision	19.9		(19.6	)
Permanent items	1.1		(315.0	)
Federal research and development credits	—		659.2
382 Limitation - NOL and tax credits	861.5		—
Change in statutory tax rate	—		—
Valuation allowance	(861.5	)	(303.6	)
Effective income tax rate	—		—

The Company’s deferred tax assets consist of the following:



	December 31,
	2019			2018
Deferred tax assets:
Net operating loss carryforwards	$	1,592,993		$	31,239,750
Research and development credit carryforwards	—			2,599,358
Accrued expenses	96,030			965,191
Inventory reserve	306,855			—
Stock-based compensation	222,420			227,843
Other	(9,455		)	9,158
Total gross deferred tax assets	2,208,843			35,041,300
Valuation allowance	(2,208,843		)	(35,041,300		)
Net deferred tax assets	$	—		$	—

At December 31, 2019, the Company has federal and state net operating loss carryforwards (“NOL”) of $147.3 million and $50.9 million, respectively, as well as federal and state tax credits of $1.7 million and $0.9 million, respectively, which may be available to reduce future taxable income and related taxes. This amount includes tax benefits of $2.5 million and $75,000 attributable to NOL and tax credit carryforwards, respectively, that result from the exercise of employee stock options. The Company experienced an ownership change in 2019, which significantly reduced the tax benefits associated with these carryforwards under Internal Revenue Code Sections 382 and 383. The federal NOLs, the state NOLs, and the federal and state research and development credits each begin to expire in 2020.

In accordance with the provisions of the Income Taxes topic of the Codification, the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating losses. Management has determined that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets and, as a result, a valuation allowance of $2.2 million and $35.0 million has been established at December 31, 2019 and 2018, respectively. The Company experienced a change in control during 2019. Accordingly, utilization of their respective consolidated and/ or separately computed NOL's and/ or tax credit carryforwards is subject to an annual limitation for federal tax purposes under Internal Revenue Code Sections 382 and 383. Due to this change in control, the Company estimates that approximately $143,300,000 of federal NOL's and/or tax credit carryforwards are effectively eliminated according to the Internal Revenue Code Sections 382 and 383 limitations. A large portion of state NOLs and/ or tax credit carry forwards are also eliminated. As a result of these eliminations, the Company's federal net operating loss and credit carryforwards are reduced to approximately $5,700,000 and $0 respectively, before valuation allowance. State credit carryforwards are reduced to zero. The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending income tax examinations. The Company’s tax years are still open under statute from December 31, 2016 to the present. Earlier years may be examined to the extent that tax credit or net operating loss carryforwards are used in future periods. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision.