Income Taxes

12 Months Ended

Dec. 31, 2020

Current income tax expense (benefit) attributable to continuing operations was zero for the years ended December 31, 2020 and 2019.

The Company’s effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2020 and 2019.


	Years Ended December 31,
	2020		2019
Federal tax provision (benefit) rate	(21.0)	%	(21.0)	%
State tax provision, net of federal provision	(4.6)		19.9
Permanent items	5.9		1.1
Federal research and development credits	—		—
382 Limitation - NOL and tax credits	(1.9)		861.5
Other	(0.3)		—
Change in statutory tax rate	—		—
Valuation allowance	21.9		(861.5)
Effective income tax rate	—		—

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


	December 31,
	2020		2019
Deferred tax assets:
Net operating loss carryforwards	$	2,211,161	$	1,592,993
Research and development credit carryforwards	43,667		—
Accrued expenses	112,995		96,030
Inventory reserve	311,639		306,855
Stock-based compensation	245,988		222,420
Right of use asset	290,268		—
Other	—		(9,455)
Total gross deferred tax assets	3,215,718		2,208,843
Valuation allowance	(3,012,513)		(2,208,843)
Deferred tax liabilities:
Lease liability	$	(189,498)	$	—
Other	$	(13,707)	$	—
Net deferred tax assets	$	—	$	—

At December 31, 2020, the Company has federal net operating loss carryforwards (“NOL”) of approximately $143.7 million, of which $138.4 million begin to expire in 2021 and $5.3 million have an indefinite carryforward. At December 31, 2020, the Company has state NOLs of $53.1 million, some of which have an indefinite carryforward, and others that begin to expire in 2025. At December 31, 2020, the Company has federal and state tax credits of approximately $1.8 million and $1.1 million, respectively, which may be available to reduce future taxable income and related taxes thereon. These amounts include tax benefits of approximately $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 as defined under Internal Revenue Service Regulations, 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 began 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 approximately $3.0 million and $2.2 million has been established at December 31, 2020 and 2019, 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 $7,300,000 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, 2017 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.

- 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.

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