Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Note 9 - Income Taxes

The Company’s loss before income taxes was $26.1 million and $12.5 million for the years ended December 31, 2020 and 2019, respectively.

The Company’s provision for income taxes consists of the following for the years ended December 31, 2020 and 2019:

	December 31,
	2020		2019
Current income tax provision
Federal	$	—	$	—
State		—		—
Foreign		132,403		—
Total		132,403	$	—
Deferred income tax provision
Federal		—		—
State		—		—
Foreign		—		—
Total		—		—
Total provision for income taxes	$	132,403		—

At December 31, 2020 and 2019, the Company had net deferred tax assets of $103,185,302 and $54,359,488, respectively, primarily consisting of NOL carryforwards, research and development (“R&D”) credits, and differences between depreciation and amortization recorded for financial statement and tax purposes. The Company’s net deferred tax assets at December 31, 2020 and 2019 have been offset by a valuation allowance of $98,874,420 and $54,359,488, respectively. The valuation allowance has been recorded due to the uncertainty of realization of the deferred tax assets. The Company’s deferred tax assets and liabilities as of December 31, 2020 and 2019 are as follows:

	December 31,
	2020			2019
Deferred tax assets:
NOL carryforward	$	98,165,790		$	51,247,762
R&E credit carryforward		2,559,479			2,559,479
Share-based compensation		319,397			325,571
Inventory reserve		—			23,213
Depreciation		100,157			1,754
Interest expense		1,233,203			95,077
ROU liabilities		475,645			—
Accruals and other		331,631			286,692
Total deferred tax assets		103,185,302			54,539,548
Valuation allowance		(98,874,420	)		(54,359,488	)
Deferred tax liabilities:
Intangible assets		(3,885,485	)		(180,060	)
ROU assets		(425,397	)		—
Net	$	—		$	—

The difference between the Company’s expected income tax provision (benefit) from applying federal statutory tax rates to the pre-tax loss and actual income tax provision (benefit) relates to the effect of the following:

	2020			2019
Federal income tax benefit at statutory rates		21.0	%		21.0	%
Permanent adjustment		0.6	%		(1.9	)%
Provision to return adjustment		—			0.4	%
State income tax benefit, net of federal benefit		3.5	%		4.4	%
Foreign rate differential		2.8	%		—
Change in valuation allowance		(28.4	)%		(23.9	)%
		(0.5	)%		0.0	%

As of December 31, 2020 and 2019, management assessed the realizability of net deferred tax assets and evaluated the need for a valuation allowance against the net deferred tax assets. This evaluation utilizes the framework contained in ASC 740, Income Taxes, whereby management considers all available positive and negative evidence as of the balance sheet date to determine whether all or some portion of the Company’s net deferred tax assets will be realized. Under this guidance, a valuation allowance must be established for net deferred tax assets when it is more-likely-than-not (a probability level of more than 50%) that the asset will not be realized.

Management followed the guidance in ASC 740, which states that “a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome” and concluded that the Company’s net deferred tax assets were not realizable as of December 31, 2020 and 2019. Accordingly, a valuation allowance of $98.9 million and $54.4 million has been recorded to offset the net deferred tax assets.

The Company has federal NOL carryforwards of $196,511,928 and $188,282,298 at December 31, 2020 and 2019, respectively. The Company also has total Foreign NOL carryforwards at December 31, 2020 of $160,540,528 which is primarily driven by the Company’s operations in Germany. The NOL carryforwards incurred prior to 2018 begin to expire in 2022. In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"), most of the provisions of which took effect starting in 2018. Under the Tax Act, the amount of post 2017 NOLs that we are permitted to deduct in any taxable year is limited to 80% of our taxable income in such year, where taxable income is determined without regard to the NOL deduction itself. In addition, the Tax Act generally eliminates the ability to carry back any NOL to prior taxable years, while allowing post 2017 unused NOLs to be carried forward indefinitely. Utilization of the NOL carryforward may be subject to an annual limitation as provided by Section 382 of the Internal Revenue Code. There can be no assurance that the NOL carryforward will ever be fully utilized. To date, the Company has not performed a formal study to determine if any of its remaining NOL and credit attributes might be further limited due to the ownership change rules of Section 382 or Section 383 of the Internal Revenue Code of 1986, as amended. The Company will continue to monitor this matter going forward. There can be no assurance that the NOL carryforwards will ever be fully utilized.

The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to: (i) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (ii) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (iii) creating a new limitation on deductible interest expense; and (iv) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (v) changing the U.S. federal taxation of earnings of foreign subsidiaries. The U.S. change in federal taxation for foreign subsidiary earnings included a one-time toll charge on deemed repatriated earnings of foreign subsidiaries as of December 31, 2017. As a result of the accumulated losses in the Company’s foreign subsidiary, the Company had no toll tax liability for the tax year ended December 31, 2017. For 2018, the Company considered in its estimated annual effective tax rate additional provisions of Tax Reform including changes to the deduction for interest expense pursuant to IRC Section 163(j) interest limitation.

On March 27, 2020, the Unites States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions which are expected to impact the Company's financial statements include removal of certain limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act. The Company doesn't believe that the CARES Act will have a material impact on its financial position, results of operations, or cash flows.