Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes [Abstract]

Income Taxes

(7) Income Taxes

A reconciliation of income tax expense at the statutory federal income tax rate and income taxes as reflected in the financial statements is as follows as of December 31:

	2021			2020
Federal income tax at statutory federal rate		21.00	%		21.00	%
Permanent differences		2.00			(1.00	)
Research and development credit		3.00			3.00
Other deferred adjustments		—			(5.00	)
State income tax expense (net of federal benefit)		1.00			1.00
Valuation allowance		(27.00	)		(19.00	)
Effective tax rate		—	%		—	%

Deferred tax assets (liabilities) consisted of the following as of December 31:

	2021			2020
Deferred tax asset arising from:
Net operating loss carry forwards	$	16,873,473			14,975,253
Accrued expenses (vacation)		13,920			171,662
Intangibles		82,451			67,109
Research and development tax credits		3,190,604			2,952,047
Share-based compensation expense		20,207			20,035
Lease liabilities		188,789			271,231
Other		8,898			15,281
Deferred tax asset		20,378,342			18,472,618
Deferred tax liability arising from:
UNICAP		(10,615	)		(10,470	)
Right-of-use assets		(138,239	)		(231,283	)
Property and equipment		(14,409	)		(27,898	)
Deferred tax liability		(163,263	)		(269,651	)
Valuation allowance	$	20,215,079			18,202,967
Net deferred tax asset	$	—			—

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and the Company is required to reduce its deferred tax assets by a valuation allowance if it is more likely than not that some or all of its deferred tax assets will not be realized. Management must use judgment in assessing the potential need for a valuation allowance, which requires an evaluation of both negative and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. In determining the need for and amount of the valuation allowance, if any, the Company assesses the likelihood that it will be able to recover its deferred tax assets using historical levels of income, estimates of future income and tax planning strategies. As a result of historical cumulative losses, the Company determined that, based on all available evidence, there was substantial uncertainty as to whether it will recover recorded net deferred taxes in future periods. Accordingly, the Company recorded a valuation allowance against all of its net deferred tax assets as of December 31, 2021 and 2020.  The change in valuation allowance was $2,012,112 and $1,337,524 for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021 and 2020, respectively, the Company has $78,264,967 and $69,762,635 of federal net operating loss carry forwards and $2,407,689 and $2,169,132 of federal research and experimentation tax credits, respectively, and state net operating loss carry forwards of $7,774,956 and $5,962,200, respectively.  The utilization of such net operating loss carryforwards and the realization of tax benefits in future years depend predominately upon having taxable income. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss carry forwards and tax credit carry forwards that may be used in future years.

The Company’s net operating losses may be subject to Section 382 of the Internal Revenue Code which provide for a limitation on the annual use of net operating losses following certain ownership changes that could limit the Company’s ability to utilize these carryforwards.  The Company has completed an analysis covering the period February 19, 2004 through December 31, 2018, to determine if such ownership changes have occurred and concluded it was more likely than not that there were changes in ownership during the period, with the most recent change of ownership occurring on December 16, 2016.  Further analyses will be performed prior to recognizing the benefits of any losses or credits in the financial statements, and the Company is in the process of determining the limitations that Section 382 will have on the Company’s net operating loss carryforwards and research credits.  In general, the annual use limitation equals the aggregate value of the Company’s stock at the time of the ownership change multiplied by a specified tax-exempt interest rate.

The following schedule indicates the expiration year, as of December 31, for the Company’s federal net operating loss carryforwards available to future years without taking into account any Section 382 limitations as of December 31, 2021:

2024	$	430,332
2025		865,274
2026		1,213,130
2027		2,082,043
2028		2,536,605
2029		2,235,045
2030		4,132,949
2031		3,160,709
2032		3,533,521
2033		2,987,848
2034		2,516,728
2035		4,777,558
2036		4,503,474
2037		6,869,819
Indefinitely		36,419,932
Total	$	78,264,967

The FASB issued authoritative guidance on accounting for uncertainty in income taxes, which clarifies the accounting for income taxes, by prescribing a minimum recognition threshold that a tax position is required to meet before recognition in the financial statements. The guidance also provides direction on recognition, measurement, classification, interest, and penalties, accounting in interim periods, disclosure, and transition.  Management has determined there are no uncertain tax positions. Accordingly, these financial statements do not include any adjustments or disclosures related to uncertain tax positions.