Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.1
Income Taxes
12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

10. Income Taxes

 

In accordance with the authoritative guidance for income taxes under ASC 740, a deferred tax asset or liability is determined based on the difference between the financial statement and the tax basis of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.

 

The Company recognizes the impact of a tax position in the consolidated financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. The Company’s practice is to recognize interest and/or penalties related to income tax matters as income tax expense.

 

 

The Company is subject to taxation and files income tax returns in the United States, Australia and various state jurisdictions. All tax years from inception to date are subject to examination by the U.S. and state tax authorities due to the carry-forward of unutilized net operating losses and research and development credits. Currently, no years are under examination.

 

Significant components of the Company’s deferred income taxes at December 31, 2021 and 2020 are shown below (table in thousands):

 

    2021     2020  
Deferred tax assets:                
Net operating loss carryforwards (i)(ii)   $ 19,993     $ 17,240  
Compensation     846       837  
Research and development tax credits (iii)     2,423       2,182  
Other     466       311  
Total deferred tax assets     23,728       20,570  
                 
Deferred tax liabilities:                
Property and equipment     (21 )     (20 )
Other     (105 )     (107 )
Total deferred tax liabilities     (126 )     (127 )
                 
Total deferred taxes, net     23,602       20,443  
Valuation allowance     (23,602 )     (20,443 )
                 
Deferred tax liability, net   $ -     $ -  

 

The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized. The Company periodically evaluates the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred tax assets will be realizable, the valuation allowance will be reduced.

 

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions are the extension of the carryback period of certain losses to five years, and increasing the ability to deduct interest expense from 30 percent to 50 percent of modified taxable income. The CARES Act also provides for a credit against employee wages, the opportunity to defer payment of a portion of federal payroll taxes to December 2021 and December 2022 and enhanced small business loans to assist business impacted by the pandemic. The Company’s tax provision and financial position was not materially impacted by the CARES Act.

 

On December 27, 2020, the United States enacted the Consolidated Appropriations Act which extended and modified many of the tax related provisions of the CARES Act. The Company does not anticipate a material impact of the Consolidated Appropriations Act on its tax provision or financial position.

 

At December 31, 2021, the Company has federal and state net operating losses (“NOL”) carryforwards of approximately $93.2 million and $4.4 million, respectively. The federal and Florida NOL generated after 2017 of $31.6 million and $4.4 million, respectively, will carryforward indefinitely. Under the CARES Act, the Internal Revenue Code was amended to allow for federal NOL carrybacks for five years to offset previous income, or can be carried forward indefinitely to offset 100% of the taxable income for the tax year 2020 and 80% of the taxable income for the tax years 2021 and thereafter. The federal NOL carryforwards begin to expire in 2026

 

 

At December 31, 2021, the Company had federal research credit carryforwards of approximately $2.4 million that expire in 2028.

 

At December 31, 2021, the Company had federal and state capital loss carryforwards of approximately $1.07 million that expire in 2023.

 

The above NOL carryforward and the research tax credit carryforward are subject to an annual limitation under the Section 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions if the Company experienced one or more ownership changes, which would 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 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. The Company has not completed an IRC Section 382/382 analysis. If a change in ownership were to have occurred, NOL and tax credits carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance.

 

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

 

    2021     2020  
             
Statutory federal income tax rate     21.0 %     21.0 %
Goodwill impairment     0 %     0 %
Change in valuation allowance     (22.3 )%     (22.5 )%
Other tax, credit and adjustments     1.3 %     1.5 %
Effective income tax rate     0.0 %     0.0 %