Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

10.  INCOME TAXES

The Company accounts for income taxes in accordance with ASC 740. Deferred income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for tax purposes at each year-end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established when necessary based on the weight of available evidence, if it is considered more likely than not that all or some portion of the deferred tax assets will not be realized. Income tax expense is the sum of current income tax plus the change in deferred tax assets and liabilities.  The Company has established a valuation allowance against its deferred tax asset due to the uncertainty surrounding the realization of such asset.

The significant components of the income tax provision are as follows:

($ in thousands)	Year Ended December 31,
Current	2021		2020
Federal	$	—		—
State		—		—
Foreign		10		7
Deferred
Federal		—		—
State		—		—
Foreign		—		—
	$	10	$	7

The following is a schedule of the deferred tax assets and liabilities as of December 31, 2021 and 2020:

($ in thousands)	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	25,643		$	23,327
Stock based compensation		43			1,626
Reserves , loans and accrued expense		313			421
Gross deferred tax assets		25,999			25,374
Valuation allowance		26,040			(25,193	)
Gross deferred tax assets after valuation allowance		41			181
Deferred tax liability - Intangible and fixed assets		(41	)		(181	)
Net deferred tax liabilities	$	—			—

A reconciliation of the provision for income taxes to the amount computed by applying the statutory income tax rates to loss before income taxes is as follows:

	2021			2020
Amounts computed at statutory rates	$	1,949		$	(1,415	)
State income tax, net of federal benefit		(584	)		(551	)
Expiration of net operating loss carryforwards		(277	)		620
Equity compensation		1,482			170
Non-deductible interest		(3,884	)		(581	)
Foreign tax rate differential		173			215
Deferred tax adjustments and other		287			(1	)
Net change in valuation allowance on deferred tax assets		864			1,550
	$	10		$	7

The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets.

At December 31, 2021, the Company had federal net operating loss carryforwards of approximately $59,809,000 that begin to expire in 2022. The Company has federal net operating losses of approximately $36,604,000 that arose after the 2017 tax year and will carryforward indefinitely, the utilization of which is limited to 80% of taxable income in any given year. The Company has net operating loss carryforwards of approximately $76,295,000 for the state of California that will begin to expire in 2035.

The Internal Revenue Code (the “Revenue Code”) limits the availability of certain tax credits and net operating losses that arose prior to certain cumulative changes in a corporation’s ownership resulting in a change of control of the Company. The Company’s use of its net operating loss carryforwards and tax credit carryforwards will be significantly limited because the Company believes it underwent “ownership changes”, as defined under Section 382 of the Revenue Code, in several years, though the Company has not performed a study to determine the limitation. The Company continues to disclose the tax effect of the net operating loss carryforwards at their original amount in the table above as the actual limitation has not yet been quantified. The Company has also established a full valuation allowance for substantially all deferred tax assets due to uncertainties surrounding its ability to generate future taxable income to realize these assets. Since substantially all deferred tax assets are fully reserved, future changes in tax benefits will not impact the effective tax rate. Management periodically evaluates the recoverability of the deferred tax assets. If it is determined at some time in the future that it is more likely than not that deferred tax assets will be realized, the valuation allowance would be reduced accordingly at that time.

Tax returns for the years 2017 through 2021 are subject to examination by taxing authorities. The Company and its subsidiaries are subject to U.S. federal and state income tax, and in the normal course of business, its income tax returns are subject to examination by the relevant taxing authorities. As of December 31, 2021, the 2017 – 2021 tax years remain subject to examination in the U.S. federal tax state and foreign jurisdictions. However, to the extent allowed by law, the taxing authorities may have the right to examine the period from 2001 through 2021 where net operating losses and income tax credits were generated and carried forward and make adjustments to the amount of the net operating loss and income tax credit carryforward amount. The Company is not currently under examination by federal, state, or foreign jurisdictions. The Company recognizes the tax benefit from an uncertain income tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. As of December 31, 2021 and 2020 the Company had no liability for unrecognized tax benefits. The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of December 31, 2021, the Company has no accrued interest or penalties related to uncertain tax positions.