Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.4
Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

Note 11. Income Taxes


Our effective tax rate differs from the statutory federal tax rate as presented in the following table:


    2020     2019  
U.S. federal statutory tax rate     21 %     21 %
Permanent differences     1 %     (1 )%
Valuation allowance     (22 )%     (20 )%
                 
Total:     - %     - %

As of December 31, 2020 and 2019, the Company was domiciled in Texas, and due to the losses generated and no revenues, it incurred no federal or state tax.


The tax effect of the temporary differences that give rise to the significant portions of the deferred tax assets and liabilities is presented below.


    December 31,  
    2020     2019  
Deferred tax assets            
Depreciation   $ -     $ 502  
Research and development credits     180,889       93,102  
Stock-based compensation     257,941       24,695  
Net operating loss carryforwards     2,417,169       1,366,040  
Deferred tax asset     2,855,999       1,484,340  
                 
Less: valuation allowance     (2,849,762 )     (1,484,340 )
Net deferred tax asset     6,237       -  
                 
Deferred tax liabilities                
Fixed assets     (6,237 )     -  
Net deferred tax assets   $ -     $ -  

Due to a history of losses we have generated since inception, we believe it is more-likely-than-not that all of the deferred tax assets will not be realized as of December 31, 2020 and 2019. Therefore, we have recorded a full valuation allowance on our deferred tax assets. At December 31, 2020 and 2019, we have net operating loss (“NOL”) carryforwards for federal income tax purposes of approximately $11.5 million and $6.5 million, respectively. The NOL carryforwards generated prior to 2018 of approximately $3.1 million could expire over time beginning in 2035, if not used. The NOL carryforwards generated in 2018 to 2020 of $8.4 million do not expire and are carried forward indefinitely. We also have state NOLs of approximately $71,000 at December 31, 2020. The Company also has approximately $181,000 of research and development tax credit carryforwards for federal purposes. These credits begin expiring in 2034. Due to the change in ownership provisions of the Internal Revenue Code, the availability of the Company’s NOL carryforwards and research and development credit carryforwards may be subject to annual limitations under Section 382 of the Internal Revenue Code against taxable income in the future period, which could substantially limit the eventual utilization of such carryforwards.


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. In addition, interest and penalties, if any, as they relate to income taxes assessed, are included in the income tax provision, for which there were none. The Company’s U.S. federal operating losses have occurred since its inception 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.