Annual report pursuant to Section 13 and 15(d)

Note 16 - Income Taxes

v3.20.4
Note 16 - Income Taxes
12 Months Ended
Dec. 31, 2020
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

16.

Income Taxes

 

Loss before income tax expense consists of the following (in thousands):

 

   

Year ended December 31,

 
   

2020

   

2019

 

US

  $ (25,760 )   $ (44,793 )

Foreign

           

Total

  $ (25,760 )   $ (44,793 )

 

The components of the provision for income tax expense consist of the following (in thousands):

 

   

Year ended December 31,

 
   

2020

   

2019

 

Current

               

Federal

  $     $  

State

    2       2  
                 

Deferred

               

Federal

           

State

           

Total provision for income taxes

  $ 2     $ 2  

 

Reconciliation of the statutory federal income tax rates consist of the following :

 

   

Year ended December 31,

 
   

2020

   

2019

 

Tax at federal statutory rate

    21.00 %     21.00 %

State tax, net of federal benefit

    0.05 %     0.06 %

Change in rate

    %     (0.07 )%

Valuation allowance

    (15.54 )%     (19.11 )%

Impairment charge of acquired IP

    %     (0.24 )%

Excess benefits from equity compensation

    (5.66 )%     %

Other

    0.14 %     (1.64 )%

Provision for taxes

    (0.01 )%     %

 

The components of deferred tax assets (liabilities) included on the consolidated balance sheet are as follows (in thousands):

 

   

As of December 31,

 
   

2020

   

2019

 

Deferred tax assets

               

Capitalized start-up costs

  $ 3,461     $ 3,767  

Credits

    402       364  
Fixed assets     2,160        

Net operating losses

    25,116       20,049  

Others

    553       2,744  

Total gross deferred tax assets

    31,692       26,924  

Valuation allowance

    (30,717 )     (26,713 )

Total gross deferred tax assets (net of valuation allowance)

  $ 975     $ 211  
                 

Deferred tax liabilities

               

Patents

  $ (156 )   $ (192 )

Fixed assets

          (19 )

Beneficial conversion feature - debt discount

    (819 )      

Total gross deferred tax liabilities

    (975 )     (211 )

Net deferred tax assets

  $     $  

 

Based on the available objective evidence at this time, management believes that it is more likely than not that the net deferred tax assets of the Company will not be realized. Accordingly, management has applied a full valuation allowance against net deferred tax assets at both  December 31, 2020 and December 31, 2019. The net valuation allowance increased by approximately $4.0 million during the year ended  December 31, 2020. The increase in net valuation allowance primarily relates to net operating losses generated during 2020.

 

The Company has Federal and California net operating loss carryforwards of approximately $118.2 million and $4.3 million, respectively, which will begin to expire in December 31, 2034 for Federal and California purposes.

 

Utilization of the Company’s net operating loss may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of net operating loss carryforwards prior to utilization.

 

At  December 31, 2020, the Company had research and development credits carryforward of approximately $0.2 million and $0.5 million for Federal and California income tax purposes, respectively. If not utilized, the Federal research and development credits carryforward will begin to expire in December 31, 2034. The California credits can be carried forward indefinitely.

 

The Company’s policy is to account for interest and penalties as income tax expense. As of  December 31, 2020, the Company had no interest related to unrecognized tax benefits. No amounts of penalties related to unrecognized tax benefits were recognized in the provision for income taxes.

 

The Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgement and estimation and are continuously monitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases, and other information. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as income tax expense. At  December 31, 2020, the Company’s total amount of unrecognized tax benefit was approximately $0.2 million, none of which will affect the effective tax rate, if recognized. The Company does not expect its unrecognized benefits to change materially over the next twelve months.

 

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side payroll tax, Paycheck Protection Program, net operating loss carryback periods, and modifications to the net interest deduction limitations. The most significant impact to the Company from the CARES Act relates to the Paycheck Protection Program and deferment of employer side payroll tax.

 

The Company files income tax returns with the United States federal government and the State of California. The Company’s tax returns for all prior years from the Company's inception in 2014 remain open to audit for Federal and California purposes.