Note 14 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

14. Income Taxes

No provision for income taxes has been recorded due to the net operating losses incurred from inception to date, for which no benefit has been recorded.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 in the United States. The CARES Act includes several significant provisions for corporations, including the usage of net operating losses and payroll benefits. The Company is evaluating the impact, if any, the CARES Act and other economic stimulus measures will have on the Company’s financials and disclosures.  

The Company’s effective tax rate is 0% for the years ended December 31, 2021 and 2020.

A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows:

	Year Ended December 31,
	2021			2020
Income tax benefit at statutory rate		(21	)%		(21	)%
State income taxes, net of federal benefit		(3	)%		(3	)%
Change in valuation allowance		21	%		20	%
Other		3	%		4	%
Effective tax rate		0	%		0	%

The components of the Company’s net deferred tax assets and liabilities are as follows (in thousands):

	Year Ended December 31,
	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	25,092		$	20,891
Capitalized start up costs		2,511			2,866
Research and development credits		781			631
Accruals and reserves		1,537			773
Fixed assets and depreciation		124			291
Total deferred tax assets		30,045			25,452
Deferred tax liabilities:
Valuation allowance		(30,045	)		(25,452	)
Net deferred tax assets	$	-		$	-

The Company has recorded a full valuation allowance for its deferred tax assets based on its past losses and the uncertainty regarding the ability to project future taxable income. The valuation allowance increased by approximately $4,593,000 during the year ended December 31, 2021 and decreased by approximately $4,352,000 during the year ended December 31, 2020.

As of December 31, 2021, the Company has net operating loss (“NOL”) carryforwards for federal and state income tax purposes of approximately $112,951,000 and $34,469,000, respectively. The federal NOLs do not expire and the state NOLs will begin to expire in the year 2028.

The Company has California research and development tax credits of approximately $768,000. The credits have no expiration date. The Company also has Colorado job growth incentive tax credits of approximately $451,000. The credits will begin to expire in the year 2028.

Utilization of the NOL and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership changes that have occurred previously or that could occur in the future, as provided by Section 382 of the Internal Revenue Code of 1986, as well as similar state provisions. Ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. While the Company has not performed a formal study, it believes it experienced a change of control in November 2019, which will result in the expiration of a portion of the NOL and research and development credit carryforwards before utilization. Subsequent ownership changes, such as the January 2021 Offering, could further impact the limitation in future years. A full valuation allowance has been provided against the Company’s NOL carryforwards and research and development credit carryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no net impact to the consolidated balance sheets or the consolidated statements of operations if an adjustment were required.

As of December 31, 2021, the Company had not accrued any interest or penalties related to uncertain tax positions. 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Year Ended December 31,
	2021			2020
Balance at the beginning of the year	$	245		$	223
Additions (deletions) based upon tax positions related to the current year		(14	)		22
Balance at the end of the year	$	231		$	245

If the ending balance of $231,000 of unrecognized tax benefits as of December 31, 2021 were recognized, none of the recognition would affect the income tax rate. The Company does not anticipate any material change in its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may change during the next year for items that arise in the ordinary course of business.

The Company files U.S. federal and state income tax returns with varying statutes of limitations. All tax years since inception remain open to examination due to the carryover of unused net operating losses and tax credits.