Income Taxes

Since inception, the Company has incurred net losses, and until

2018,

had

not

recorded any U.S. federal or state income tax benefits for the losses. In

2018,

as a result of the change in net operating loss carryforward period associated with the Tax Cuts and Jobs Act ("the

2017

Tax Act"), the Company recognized an income tax benefit to reflect the adjustment allowed by the

2017

Tax Act to utilize indefinite deferred tax liabilities as a source of income against indefinite lived portions of the Company’s deferred tax assets. In

2019,

as a result of a change in ownership under the provisions of Internal Revenue Code Section

382,

the cumulative benefit of net operating losses was remeasured which resulted in tax expense to reverse the

2018

benefit recorded and record a benefit relative to losses incurred in

2019

after the date of the change in ownership.

Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which differences are expected to reverse.

Significant components of the Company's deferred tax assets for federal income taxes consisted of the following:

Deferred tax assets	December 31, 2019			December 31, 2018
Net operating loss carryforwards	$	1,504,496		$	5,875,074
Stock option compensation		1,381,750			2,456,410
Orphan Drug credits		81,700			2,847,803
Lease liability		63,589
Capitalized start-up costs and other		9,187,898			7,349,092
Valuation allowance		(12,051,440	)		(18,091,090	)
Deferred tax assets		167,993			437,289

Deferred tax liabilities
Intangible assets		(2,223,678	)		(2,223,678	)
Right of use asset		(63,589	)		—
Deferred tax liabilities		(2,287,267	)		(2,223,678	)

Net deferred tax liability	$	(2,119,274	)	$	(1,786,389	)

The Company does

not

have unrecognized tax benefits as of

December

31,

2019

December 31, 2018.

The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

The Company had net operating loss carryforwards (“NOL”) for federal and state income tax purposes at

December

31,

2019

and

2018

of approximately:

Combined NOL Carryforwards:	December 31, 2019		December 31, 2018
Federal	$	5,844,972	$	22,819,972
State		5,844,972		22,845,568

The pre-

2018

net operating loss carryforwards begin expiring in

2020

for both federal and state income tax purposes. In

November 2019,

as a result of a change of ownership under the provisions of Internal Revenue Code Section

382

and similar state provisions, the Company’s ability to utilize their net operating loss carryforwards to offset future income was limited. The Company recorded a valuation allowance against a portion of their deferred tax assets as of

December 31, 2019

because of the uncertainty of their realization.

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

Rate reconciliation:	December 31, 2019			December 31, 2018
Federal tax benefit at statutory rate		(21.0	)%		(21.0	)%
State tax, net of Federal benefit		(2.5	)%		(2.9	)%
Goodwill impairment		—	%		7.7	%
Orphan drug credit		25.3	%		(1.3	)%
Change in valuation allowance		(7.5	)%		15.2	%
Stock compensation		8.6	%		—	%
Other		0.1	%		—	%
Total provision		3.0	%		(2.3	)%

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company’s

2016

2018

tax years remain open and subject to examination.