Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

9.

 

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

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, 2020			December 31, 2019
Net operating loss carryforwards	$	3,864,189		$	1,504,496
Stock-based compensation		1,571,227			1,381,750
Orphan Drug credits		541,384			81,700
Lease liability		38,394			63,589
Capitalized start-up costs and other		10,709,631			9,187,898
Valuation allowance		(14,906,646	)		(12,051,440	)
Deferred tax assets		1,818,179			167,993
Deferred tax liabilities
Intangible assets		(2,223,678	)		(2,223,678	)
Right of use asset		(38,394	)		(63,589	)
Deferred tax liabilities		(2,262,072	)		(2,287,267	)
Net deferred tax liability	$	(443,893	)	$	(2,119,274	)

The Company does

not

have unrecognized tax benefits as of

December 

31,

2020

or

December 31, 2019.

The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

The Company had NOL carryforwards for federal and state income tax purposes at

December 

31,

2020

and

2019

of approximately:

Combined NOL Carryforwards:	December 31, 2020		December 31, 2019
Federal	$	15,013,388	$	5,844,972
State		15,007,966		5,844,972

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, 2020

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 consolidated financial statements is as follows:

Rate reconciliation:	December 31, 2020			December 31, 2019
Federal tax benefit at statutory rate		(21.0	)%		(21.0	)%
State tax, net of Federal benefit		(4.7	)%		(2.5	)%
Orphan drug credit		(2.9	)%		25.3	%
Change in valuation allowance		18.1	%		(7.5	)%
Stock compensation		—	%		8.6	%
Other		—	%		0.1	%
Total provision		(10.5	)%		3.0	%

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

2017

to

2019

tax years remain open and subject to examination.