Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

10.         Income Taxes

The components of loss before income tax provision are as follows for the years ended December 31:

	2021			2020
United States	$	(5,911	)	$	(7,089	)
International		252			279
Total loss before income tax provision	$	(5,659	)	$	(6,810	)

Income tax expense (benefit) from continuing operations consists of the following for the years ended December 31:

	2021			2020
	(in thousands)
Current:
Federal	$	—		$	—
State		—			10
Foreign		—			—
		—			10
Deferred:
Federal		1,216			(562	)
State		315			(159	)
Foreign		—			—
		1,531			(721	)
Change in federal tax rate		—			—
Valuation allowance		(1,531	)		721
Total income tax expense (benefit)	$	—		$	10

The reconciliations of the U.S. federal statutory rate to the effective income tax rate for the years ended December 31, 2021, and 2020, are as follows:

	2021			2020
Tax provision at U.S. federal statutory rates		21.0	%		21.0	%
State income taxes net of federal benefit		(5.5	)		2.1
Deferred tax asset adjustments – NOL related		0.0			0.0
Non-deductible permanent items		(1.1	)		(1.1	)
Stock options		(4.3	)		(28.0	)
PPP Debt Forgiveness		4.9			0.0
Change in valuation allowance		(15.2	)		5.8
Effective income tax rate		(0.2	)%		(0.2	)%

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred taxes as of December 31, 2021 and 2020 are as follows:

	2021			2020
	(in thousands)
Deferred tax assets:
Allowance for doubtful accounts	$	26		$	103
Accrued liabilities		357			412
Net operating loss carryforwards		26,478			24,798
Intangible assets		3,883			4,259
Share-based compensation expense		365			228
Other		1,418			1,370
Total gross deferred tax assets		32,527			31,181
Valuation allowance		(31,979	)		(30,447	)
Total deferred tax assets		548			734
Deferred tax liabilities:
Right of use assets		(509	)		(733	)
Fixed assets		(39	)		—
Other		—			(1	)
Total gross deferred tax liabilities		(548	)		(734	)
Net deferred tax assets	$	—		$	—

During 2021 and 2020, the Company continued to experience losses and is not projecting taxable income in the near future. Based on this evaluation, the Company recorded an additional valuation allowance of $1.5 million and $0.7 million against its deferred tax assets during the years ended 2021 and 2020, respectively. Based on the weight of available evidence, the Company believes that it is more likely than not that these deferred tax assets will not be realized.

In response to the coronavirus pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the TCJA. Corporate taxpayers may carryback net operating losses (“NOL’s”) originating during 2018 through 2020 for up to five years, which was not previously allowed under the TCJA. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020.

The CARES Act lifts certain deduction limitations originally imposed by the TCJA. Corporate taxpayers may carryback NOLs originating during 2018 through 2020 for up to five years, which was not previously allowed under the TCJA. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020.

The CARES Act in part provides for an employee retention credit, which is a refundable tax credit against certain employment taxes equal to 50% of qualified wages an eligible employer pays to employees. In March 2022, we amended certain payroll tax filings in conjunction with the employee retention credit and are awaiting confirmation of the credit from the IRS.

On December 27, 2020, the Consolidated Appropriations Act of 2021 (the “Act”) was signed into law.  The Act enhances and expands certain provisions of the CARES Act.  The Act permits taxpayers whose PPP loans are forgiven to deduct the expenses relating to their loans to the extent they would otherwise qualify as ordinary and necessary business expenses. This rule applies retroactively to the effective date of the CARES Act, so that expenses paid using funds from PPP loans previously issued under the CARES Act are deductible, regardless of when the loan was forgiven. The Company’s $1.4M PPP loan was completely forgiven in January 2021 and the loan forgiveness income is excludable from gross income for tax purposes in the year it was forgiven for federal purposes.

On December 31, 2021, the Company had federal and state NOLs of approximately $110.7 million and $55.7 million, respectively.  $36.7 million of the federal NOLs have an indefinite life and do not expire. The remaining $74.1 million of the federal and all of the state NOLs expire through 2025 and 2035, respectively, as follows:

The federal NOLs expire through 2035 as follows (in millions):

2025	$	4.2
2026		25.5
2027		15.5
2028		5.2
2029		7.7
2030		10.6
2031		1.3
2032		—
2033		0.1
2034		2.5
2035		1.5
Do not expire		36.7
	$	110.7

The state NOLs expire through 2040 as follows (in millions):

2028	$	2.6
2029		5.8
2030		11.0
2034		1.4
2035		0.8
2038		2.3
2039		2.2
2040		0.6
		0.8
California NOLs		27.6
Other State NOLs		28.1
Total State NOLs	$	55.7

Utilization of the NOLs and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the IRC, as well as similar state provisions. These ownership changes may limit the amount of NOLs and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.  A Section 382 ownership change occurred in 2006 and any changes have been reflected in the NOLs presented above as of December 31, 2021.  

At December 31, 2021, the Company has state research and development tax credit carryforwards of $0.2 million.  The previous federal tax credits have been written off in the prior year and the state credits do not expire.

As of December 31, 2021, and 2020, the Company had unrecognized tax benefits of approximately $0.2 million and $0.2 million, respectively, all of which, if subsequently recognized, would have affected the Company’s tax rate.  A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2021		2020
	(in thousands)
Balance at January 1,	$	189	$	464
Reductions based on tax positions related to prior years and settlements		-		(275	)
Balance at December 31,	$	189	$	189

The Company is subject to taxation in the United States and various foreign and state jurisdictions. In general, the Company is no longer subject to U.S. federal and state income tax examinations for years prior to 2018 and 2017, respectively (except for the use of tax losses generated prior to 2018 that may be used to offset taxable income in subsequent years). The Company does not anticipate a significant change to the total amount of unrecognized tax benefits within the next twelve months.

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 has not accrued any interest associated with its unrecognized tax benefits in the years ended December 31, 2021, and 2020.