Note 17 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

17. Income Taxes

As of December 31, 2021, the Company has a federal and state net operating loss (“NOL”) carryover of approximately $122.5 million and $64.3 million, respectively, available to offset future income for income tax reporting purposes. The Company’s ability to use the carryover net operating loss may be substantially limited or eliminated pursuant to Internal Revenue Code Section 382. A limitation may apply to the use of the net operation loss and credit carryforwards, under provisions of the Internal Revenue Code that are applicable if we experience an “ownership change”. That may occur, for example, as a result of trading in our stock by significant investors as well as issuance of new equity. Should these limitations apply, the carryforwards would be subject to an annual limitation resulting in a substantial reduction in the gross deferred tax.

We periodically evaluate our NOL carryforwards and whether certain changes in ownership have occurred that would limit our ability to utilize a portion of our NOL and tax credit carryforwards. We have evaluated whether we experienced an ownership change, as defined under Section 382, and determined that an ownership change did occur as of July 9, 2020 and January 22, 2021. NOL carryovers of approximately $66.2 million subject to the July 9, 2020 ownership change date are subject to a base $0.1 million annual limitation for each year following said ownership change. The Company will be able to utilize the annual limitation of the net operating loss carryforwards to offset future taxable incomes. NOL carryovers of approximately $17.9 million that occurred between the July 9, 2020 and January 22, 2021 ownership change dates are subject to a base $11.9 million annual limitation for each year following said ownership change.

The following table sets forth the tax effects of temporary differences that give rise to significant portions of the Company’s net deferred tax assets (in thousands):

	December 31,
	2021			2020
Deferred tax assets, net:
Net operating loss carryforwards	$	29,277		$	15,406
Operating lease assets		(7,881	)		(82	)
Operating lease liabilities		8,086			88
Depreciation		3,840			3,427
Restricted stock		1,146			992
Business interest expense		1,165			1,441
Other temporary differences		886			321
Deferred tax assets		36,519			21,593
Valuation allowance		(36,519	)		(21,593	)
Net deferred tax assets	$	—		$	—

The Company recognizes uncertain tax positions net, against any operating losses or applicable research credits as they arise. Currently, there are no uncertain tax positions recognized at December 31, 2021 and 2020, respectively.

ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Based on management’s review of both the positive and negative evidence, which includes our historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting results, we have concluded that it is not more likely than not that we will be able to realize all of our U.S. deferred tax assets. Therefore, we have provided a full valuation allowance against deferred tax assets at December 31, 2021 and 2020, respectively.

The following table sets forth reconciling items from income tax computed at the statutory federal rate:

 

	Year Ended December 31,
	2021			2020			2019
Federal income tax at statutory rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal benefits		3.8	%		4.1	%		7.0	%
Impact of change in statutory tax rates		—			(0.8	%)		(0.2	%)
Impact of NOL write-offs		—			(250.4	%)		—
Impact of Research and Development credit write-off		—			(8.7	%)		—
Permanent deductions		0.3	%		(5.3	%)		(0.1	%)
Valuation allowance		(25.2	)%		240.1	%		(27.7	%)
Effective tax rate		—	%		—	%		—	%

Accounting literature regarding liabilities for unrecognized tax benefits provides guidance for the recognition and measurement in financial statements of uncertain tax positions taken or expected to be taken in a tax return. The Company’s evaluation was performed for the tax periods from inception to December 31, 2021. The Company is subject to examination by major tax jurisdictions for the years ended December 31, 2016 to 2021.