Note 13 – Income Taxes

A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective tax rate is as follows:

	December 31,
	2020			2019
Federal statutory rate		21.0	%		21.0	%
State taxes		6.7	%		21.1	%
Extraordinary gain		0.0	%		38.0	%
Permanent differences		(4.5	)%		(4.1	)%
Research and development		2.3	%		4.1	%
Valuation Allowance		(27.1	)%		(74.6	)%
Other		1.6	%		(0.3	)%
Effective tax rate		0.0	%		5.2	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets were as follows:

	December 31,
	2020			2019
Federal net operating losses	$	19,757,859		$	16,620,765
State net operating losses		5,704,791			4,653,462
Stock options		1,687,123			2,153,487
Restricted stock/warrants		–			143,841
Federal tax credit		1,089,138			740,040
State tax credits		752,791			657,376
Amortization		41,695			47,811
Accrued expense		352,642			363,617
Depreciation		721,024			719,263
Lease liabilities		171,543			–
Other		18,098			18,098
Total gross deferred tax assets		30,296,704			26,117,760
Less valuation allowance		(30,142,744	)		(26,117,760	)
Net deferred tax assets	$	153,960		$	–


Right of use asset	(153,960	)	–
Total gross deferred tax liabilities	(153,960	)	–
Deferred tax, net	–		–

In assessing the realizability of the net deferred tax assets, the Company considers all relevant positive and negative evidence to determine whether it is more likely than not that some portion of the deferred income tax will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. At December 31, 2020 and 2019, the Company has recorded a full valuation allowance against its net deferred tax assets of approximately $30.1 and $26.1 million respectively. The change in the valuation allowance during the year ended 2020 was approximately $4.0 million.

At December 31, 2020, the Company had federal net operating loss (“NOL”) carryforwards of approximately $94.1 million. At December 31, 2020, the Company had federal research and development credit carryforwards of approximately $1.1 million. The federal net operating loss carryforwards begin to expire in 2028, losses generated in 2018 or later will carry forward indefinitely. The federal credit carryforwards begin to expire in 2032. Section 382 and 383 of the Internal Revenue Code of 1986 subject the future utilization of net operating losses and certain other tax attributes, such as research and experimental tax credits, to an annual limitation in the event certain ownership changes, as defined. The Company may be subject to the net operating loss utilization provisions of Section 382 of the Internal Revenue Code. The effect of an ownership change would be the imposition of an annual limitation on the use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate. Although the Company has not completed an analysis under Section 382 of the Code, it is likely that the utilization of the NOLs will be limited.

At December 31, 2020, the Company had approximately $80.4 million of State of New Jersey NOLs which expire between 2029 and 2040. At December 31, 2020, the Company had approximately $1.0 million of the State of New Jersey research development credits carryforwards. The State of New Jersey has enacted legislation permitting certain corporations located in New Jersey to sell state tax loss carryforwards and state research and development credits, or net loss carryforwards. The Technology Business Tax Certificate Transfer Program enables qualified, unprofitable NJ-based technology or biotechnology companies with fewer than 225 US employees (including parent company and all subsidiaries) to sell a percentage of New Jersey NOLs and research and development (“R&D”) tax credits to unrelated profitable corporations. In 2020 the company applied to sell its New Jersey NOL and is currently awaiting a final decision regarding this program.

Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns. The Company has analyzed its tax positions and has concluded that as of December 31, 2020, there were no uncertain positions. The Company’s U.S. federal and state net operating losses have occurred since its inception in 2009 and as such, tax years subject to potential tax examination could apply from that date because the utilization of net operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities. Interest and penalties, if any, as they relate to income taxes assessed, are included in the income tax provision. The Company did not have any unrecognized tax benefits and has not accrued any interest or penalties for the years ended December 31, 2020 and 2019.