Annual report pursuant to Section 13 and 15(d)

Note 14 - Income Taxes

v3.20.4
Note 14 - Income Taxes
12 Months Ended
Dec. 31, 2020
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, 2020
and
2019.
 
A reconciliation of the U.S. statutory income tax rate to the Company's effective tax rate is as follows:
 
   
Year Ended
 
   
December 31,
 
   
2020
   
2019
 
                 
Income tax benefit at statutory rate
   
(21
)%    
(21
)%
State income taxes, net of federal benefit
   
(3
)%    
(4
)%
Change in valuation allowance
   
20
%    
(39
)%
Debt restructuring
   
0
%    
6
%
Limitation on net operating loss and credit carryovers
   
0
%    
56
%
Other
   
4
%    
2
%
Effective tax rate
   
0
%    
0
%
 
 
The components of the Company's net deferred tax assets and liabilities are as follows (in thousands):
 
   
December 31,
 
   
2020
   
2019
 
Deferred tax assets:
               
Net operating loss carryforwards
  $
20,891
    $
16,688
 
Capitalized start up costs
   
2,866
     
3,225
 
Research and development credits
   
631
     
527
 
Accruals and reserves
   
773
     
532
 
Fixed assets and depreciation
   
291
     
128
 
Total deferred tax assets
   
25,452
     
21,100
 
Deferred tax liabilities:
               
Valuation allowance
   
(25,452
)    
(21,100
)
                 
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
$4,352,000
during the year ended
December 31, 2020
and decreased by approximately
$16,506,000
during the year ended
December 31, 2019.
 
As of
December 31, 2020,
the Company has net operating loss (“NOL”) carryforwards for federal and state income tax purposes of approximately
$95,395,000
and
$20,239,000,
respectively. The federal NOLs do
not
expire and the state NOLs will begin to expire in the year
2028.
 
The Company also has California research and development tax credits of approximately
$817,000.
The credits have
no
expiration date.
 
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. The Company experienced a change of control in
November 2019,
resulting in the expiration of a portion of the NOL and research and development credit carryforwards before utilization. Subsequent ownership changes 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, 2020,
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,
 
   
2020
   
2019
 
                 
Balance at the beginning of the year
  $
223
    $
450
 
Additions (deletions) based upon tax positions related to the current year
   
22
     
(227
)
Balance at the end of the year
  $
245
    $
223
 
 
If the ending balance of
$245,000
of unrecognized tax benefits as of
December 31, 2020
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.