Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.4
Income Taxes
 12 Months Ended
Dec. 31, 2020
Income Taxes [Abstract]  
Income Taxes
11.
Income Taxes
 
The effective tax rate for the years ended December 31, 2020 and 2019 was zero percent.
 
A reconciliation of income tax computed at the statutory federal income tax rate to the provision (benefit) for income taxes included in the accompanying statements of comprehensive loss is as follows for the years ended December 31, 2020 and 2019:
 
   
2020
    
2019
  
Income tax (benefit) provision at federal statutory rate
    
(21.0
)%
    
(21.0
)%
Valuation allowance
    
13.8
      
24.2
  
State income tax, net of federal benefit
    
(4.7
)
    
(4.7
)
Acquired in-process research and development expense
    
8.8
      
—
  
Warrants
    
7.6
      
—
  
Convertible notes
    
(3.3
)
    
1.2
  
Stock options
    
(0.1
)
    
0.2
  
Research and development
    
(1.1
)
    
—
  
Pass through entity and other
    
—
      
0.1
  
Effective tax rate
    
—
%
    
—
%

Significant components of the Company’s deferred tax assets and liabilities are summarized in the tables below as of December 31, 2020 and 2019:
 
   
2020
    
2019
  
Deferred tax assets:
            
Federal and state operating loss carryforwards
  
$
3,351
    
$
1,228
  
Acquired intangibles
    
547
      
—
  
Accruals
    
—
      
87
  
Convertible notes
    
—
      
454
  
Organizational costs
    
8
      
9
  
Share-based compensation
    
466
      
81
  
Research and development
    
275
      
—
  
Subtotal
    
4,647
      
1,859
  
Valuation allowance
    
(4,647
)
    
(1,859
)
Total deferred tax assets, net of valuation allowance
    
—
      
—
  
Deferred tax liabilities:
                
Total deferred tax liabilities
    
—
      
—
  
Net deferred tax assets
  
$
—
    
$
—
  

As of December 31, 2020 and 2019, the Company had gross deferred tax assets of approximately $4.6 million and $1.9 million, respectively. Realization of the deferred assets is primarily dependent upon future taxable income, if any, the amount and timing of which are uncertain. The Company has had significant pre‑tax losses since its inception. The Company has not yet generated revenues and faces significant challenges to becoming profitable. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance of $4.6 million and $1.9 million as of December 31, 2020 and 2019, respectively. U.S. net deferred tax assets will continue to require a valuation allowance until the Company can demonstrate their realizability through sustained profitability or another source of income.
 
As of December 31, 2020 and 2019, the tax effect of the Company’s federal net operating loss carryforwards was approximately $2.7 million and $1.0 million, respectively. The Company had federal research credit carryforwards as of December 31, 2020 and 2019 of approximately $0.3 million and zero, respectively. The federal net operating loss carryforwards will not expire and the tax credit carryforwards will begin to expire in 2040 if not utilized.  As of December 31, 2020 and 2019, the Company had state net operating loss carryforwards with a tax effect of approximately $0.6 million and $0.2 million, respectively. The Company did not have any state research credit carryforwards as of December 31, 2020 and 2019. The state net operating loss carryforwards will begin to expire in 2028.
 
Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. Generally, in addition to certain entity reorganizations, the limitation applies when one or more “5-percent shareholders” increase their ownership, in the aggregate, by more than 50 percentage points over a 36‑month time period testing period, or beginning the day after the most recent ownership change, if shorter. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company is currently reviewing Rexahn’s deferred tax inventory as of the close of the Merger to determine the extent of tax carryforwards and credits available, if any, to the Company post-Merger; the review has not been completed to date.
 
The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. There were no uncertain tax positions as of December 31, 2020 and 2019, and as such, no interest or penalties were recorded to income tax expense.
 
The Company’s corporate returns are subject to examination for the 2018 and 2019 tax years for both federal income tax purposes and for state income tax purposes in one state jurisdiction.