Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 16. Income Taxes

The Company provides for income taxes based upon management’s estimate of taxable income or loss for each respective period. The Company recognizes an asset or liability for the deferred tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. These temporary differences would result in deductible or taxable amounts in future years, when the reported amounts of the assets are recovered or liabilities are settled, respectively.

In each period since inception, the Company has recorded a valuation allowance for the full amount of its net deferred tax assets, as the realization of the net deferred tax assets is uncertain. As a result, the Company has not recorded any federal or state income tax benefit in the accompanying consolidated statements of operations; however, income tax expense has been recorded for state minimum and foreign income taxes.

The Company periodically reviews its filing positions for all open tax years in all U.S. federal, state and international jurisdictions where the Company is or might be required to file tax returns or other required reports. The Company applies a two-step approach to recognizing and measuring uncertain tax positions. The Company evaluates the tax position for recognition by determining if the weight of available evidence indicates that it is “more likely than not” that the position will be sustained on audit, including resolution of related appeals or litigation process, if any. The term “more likely than not” means a likelihood of more than 50 percent. If the tax position is not more likely than not to be sustained in a court of last resort, the Company may not recognize any of the potential tax benefit associated with the position. The Company recognizes a benefit for a tax position that meets the more likely than not criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect the Company’s results of operations, financial position and cash flows. As discussed below, the Company has estimated $3.2 million and $3.0 million of uncertain tax positions as of December 31, 2021 and 2020, respectively, related to certain tax credit carryforwards.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at December 31, 2021 or 2020, and has not recognized interest or penalties during the years ended December 31, 2021 and 2020, since there was no reduction in income taxes paid due to uncertain tax positions. Management of the Company believes no significant change to the amount of unrecognized tax benefits will occur within the next 12 months.

The following table summarizes loss before income taxes:

	Years Ended December 31,
	2021			2020
U.S. pre-tax loss	$	(17,156,070	)	$	(20,855,184	)
Foreign pre-tax gain (loss)		33,375			(619	)
Loss before income taxes	$	(17,122,695	)	$	(20,855,803	)

The components of income tax expense are as follows:

	Years Ended December 31,
	2021		2020
Current:
Federal	$	—	$	—
State		13,769		10,860
Foreign		8,706		3,555
Total current income tax expense	$	22,475	$	14,415
Deferred:
Federal	$	—	$	—
State		—		—
Foreign		—		—
Total deferred income tax expense	$	—	$	—
Total income tax expense	$	22,475	$	14,415

The Company’s actual income tax expense for the years ended December 31, 2021 and 2020 differ from the expected amount computed by applying the statutory federal income tax rate to loss before income taxes as follows:

	Years Ended December 31,
	2021			2020
Computed tax (benefit) at 21%	$	(3,586,925	)	$	(4,379,719	)
State taxes, net of federal benefit		(1,177,951	)		(832,055	)
Stock-based compensation		240,177			310,811
Foreign tax rate differential		(2,171	)		3,685
Return to provision		53,340			26,120
Nontaxable loan forgiveness		(360,570	)		—
Other		9,048			31,850
Research and development tax credit - state		(265,362	)		(218,991	)
Research and development tax credit - federal		(212,408	)		(197,836	)
Uncertain tax position adjustment for prior periods		(6,395	)		(5,694	)
Increase in valuation allowance		5,331,692			5,276,244
	$	22,475		$	14,415

Deferred tax assets and liabilities comprise the following:

	Years Ended December 31,
	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	47,752,053		$	43,308,483
Research and development credits		3,940,199			3,475,341
Deferred revenue		42,802			50,429
Inventory reserve		6,806			6,653
Fixed assets and intangibles		304,019			313,117
Accrued NuvoGen liability		1,196,563			1,274,896
Lease liability		366,653			269,147
Other		711,343			211,574
Gross deferred tax assets		54,320,438			48,909,640
Valuation allowance		(53,958,617	)		(48,626,925	)
Deferred tax assets, net		361,821			282,715
Deferred tax liabilities:
Right of use asset		361,821			257,705
Other		—			25,010
Total deferred tax liabilities		361,821			282,715
Net deferred tax assets (liabilities)	$	-		$	-

As of December 31, 2021, the Company has estimated federal and state net operating loss (“NOL”) carryforwards of approximately $194.0 million and $125.6 million for federal and state income tax purposes, respectively. $121.8 million of the federal NOLs are scheduled to expire from 2023 through 2037, while the remaining NOLs do not expire. $124.6 million of the state NOLs are scheduled to expire from 2024 through 2041, while the remaining NOLs do not expire. The Company’s federal and state tax credit carryforwards begin expiring in 2022.

For financial reporting purposes, valuation allowances of $54.0 million and $48.6 million at December 31, 2021 and 2020, respectively, have been established to offset deferred tax assets relating primarily to NOLs and research and development credits. The increase in the valuation allowance of $5.3 million for the year ended December 31, 2021 was primarily due to increased operating losses. The Company has established a valuation allowance against its entire net deferred tax asset. As a result, the Company does not recognize any tax benefit until it is in a taxpaying position or there is no longer negative evidence leading to the conclusion that it is more likely than not that the benefits will not be realized.

Pursuant to Sections 382 and 383 of the IRC, annual use of the Company’s NOLs and research and development credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% within a three-year period. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. If limited, the related tax asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. A preliminary analysis of past and subsequent equity offerings by the Company, and other transactions that have an impact on the Company’s ownership structure, concluded that the Company may have experienced one or more ownership changes under Sections 382 and 383 of the IRC. As such, the Company has established a valuation allowance as the realization of its deferred tax assets has not met the more likely than not threshold requirement. Due to the existence of the valuation allowance, further changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate.

A reconciliation of the Company’s gross unrecognized tax benefits is as follows:

	Years Ended December 31,
	2021			2020
Balance at beginning of year	$	2,960,842		$	2,731,015
Increases to prior positions		—			—
Decreases to prior positions		(6,395	)		(5,694	)
Increases for current year positions		238,884			235,521
Balance at end of year	$	3,193,331		$	2,960,842

As of December 31, 2021, the Company had $3.2 million of gross unrecognized tax benefits, related to research and experimental tax credits. The Company had no unrecognized tax benefits as of December 31, 2021, which, if recognized, would affect the annual effective tax rate, due to the full valuation allowance on the deferred tax assets. Although it is possible that the amount of unrecognized benefits with respect to our uncertain tax positions will increase or decrease in the next twelve months, the Company does not expect material changes.

The CARES Act contained certain income tax relief provisions, including a modification to the limitation of business interest expense for tax years beginning in 2019 and 2020. In addition, the CARES Act permitted NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021, and allowed NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company did not experience any material impacts to its tax status or reporting as a result of these provisions.

The Company files income tax returns in the United States, Arizona, California, Texas, various other state jurisdictions, and France, with varying statutes of limitations. As of December 31, 2021, the earliest year subject to examination is 2018 for U.S. federal tax purposes. The earliest year subject to examination is 2017 for the state jurisdictions, and 2019 for France. However, the Company’s federal and state NOLs and tax credit carryforwards for periods ending December 31, 2002 and thereafter remain subject to examination by the United States and certain states.