Note 16 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

16. INCOME TAXES

Loss before income tax benefits was comprised of $11,850,000 from US and $30,000 from foreign jurisdictions for the year ended December 31, 2021 and $16,728,000 from US and $83,000 from foreign jurisdictions for the year ended December 31, 2020.

The reconciliation of federal income tax attributable to operations computed at the federal statutory tax rate to income tax benefit is as follows for the:

	Year Ended December 31,
	2021			2020
Statutory federal income tax benefit	$	(2,495,000	)	$	(3,530,000	)
Intangible assets		--			69,000
PPP loan forgiveness		(137,000	)		--
Incentive stock options		257,000			56,000
Change in valuation allowance		(72,000	)		197,000
Expiration of net operating losses		1,242,000			1,558,000
Disallowed financing costs		1,282,000			1,619,000
State and local taxes		(195,000	)		(31,000	)
Foreign rate differential		26,000			13,000
Other		92,000			49,000
Total income tax expense	$	--		$	--

At December 31, 2021, we had federal net operating loss carryforwards of approximately $125,077,000 to offset future federal taxable income, with $101,805,000 available through 2037 and $23,272,000 available indefinitely. We also had state net operating loss carryforwards of approximately $60,984,000 that may offset future state taxable income through 2041. We also had foreign net operating loss carryforwards of approximately $629,000 that may offset future foreign taxable income through 2029.

At December 31, 2021, the Company has research and experimentation credit carryforwards of $1,521,000 for federal tax purposes that expire in various years between 2022 and 2041, and $1,616,000 for state income tax purposes that do not have an expiration date, and some of which expire in 2031 and 2032.

Significant components of the Company’s deferred tax assets and liabilities for federal and state income taxes are as follows:

	Year Ended December 31,
	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	27,088,000		$	27,312,000
Income tax credit carryforwards		2,797,000			2,852,000
Stock compensation		437,000			369,000
Lease obligation		127,000			160,000
Deferred revenue		313,000			366,000
Inventory reserve		449,000			234,000
Other		213,000			268,000
Total deferred tax assets		31,424,000			31,561,000
Deferred tax liabilities
Depreciation and amortization		(320,000	)		(352,000	)
Lease asset		(120,000	)		(153,000	)
Total deferred tax liabilities		(440,000	)		(505,000	)
Valuation allowance		(30,984,000	)		(31,056,000	)
Net deferred taxes	$	--		$	--

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is "more likely than not." Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Because of the Company's recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.

The valuation allowance decreased by $72,000 and increased by $197,000 during the years ended December 31, 2021 and 2020, respectively.

In August 2016, the conversion of the Boyalife debentures effected an “ownership change” as defined under the provisions of the Tax Reform Act of 1986. As a result, any net operating loss and credit carryovers existing at that date will be subject to an annual limitation regarding their utilization against taxable income in future periods. Additionally, before the conversion of the debentures, it is possible that “ownership changes” occurred, which could create additional limitations on the use of our net operating losses and credit carryovers. Additionally, ownership changes may have occurred in the periods after 2016 which could limit our utilization of losses and credits generated in the years 2016 – 2021.

On March 27, 2020, the Coronavirus, Aid, Relief and Economic Stimulus Act (CARES Act) was enacted. The CARES Act made various tax law changes including among other things (i) increasing the limitation under Section 163(j) of the Internal Revenue Code of 1986, as amended (the “IRC”) for 2019 and 2020 to permit additional expensing of interest (ii) enacting a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k), (iii) making modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes and (iv) enhancing the recoverability of alternative minimum tax credits. As of December 31, 2020, the Company has taken advantage of the PPP loan provided by the CARES Act. The PPP loan was forgiven in 2021 and forgiveness income was fully reversed as per federal guidance. The provisions of the CARES Act have not changed the amount of income tax paid, nor will they impact the GAAP tax expense benefit expected to be recorded in 2021.

On June 29, 2020, California’s Governor Newsom signed AB85 suspending California net operating loss (“NOL”) utilization and imposing a cap on the amount of business incentives tax credits (R&D credit) for tax years 2020-2022. Given an expected tax loss for 2021, the suspension will not have an impact on the company’s NOL or credits in California.