Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

14. Income Taxes

At December 31, 2021, the Company had a net operating loss carryforward for federal income tax purposes of $71.3 million, $35.8 million of which begins to expire in varying amounts in tax year 2026. Approximately $35.5 million of net operating losses, incurred after December 31, 2017, carryforward indefinitely. During each of the years ended December 31, 2021 and 2020, the Company raised additional equity capital. IRC Section 382 imposes certain limitations on the use of net operating losses and research and development tax credits to offset future taxable income when an ownership change has occurred. The Company has yet to determine whether an ownership change occurred in 2021 or 2020. If an ownership change is determined to have occurred, additional limitations on the Company’s net operating losses incurred prior to the ownership change may apply. The Company has a research and

development tax credit carryforward of $3.4 million for federal income tax purposes that begins to expire in varying amounts in tax year 2028.

In assessing the ability to realize its deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers evidence such as the reversal of deferred tax liabilities, projected future results of operations, and tax planning strategies in making this assessment. Based upon the level of historical taxable income, significant book losses during the current and prior periods, and projections for future results of operations over the periods in which the deferred tax assets are deductible, among other factors, management continues to conclude that the Company does not meet the “more likely than not” requirement of ASC 740 in order to recognize deferred tax assets. As such, a valuation allowance has been recorded to offset the Company’s net deferred tax assets at December 31, 2021. The Company recorded an increase in the valuation allowance of $2.6 million for the year ended December 31, 2021.

Due to the uncertainty surrounding the realization of the benefits of its deferred assets, including NOL carryforwards, the Company has provided a 100% valuation allowance on its deferred tax assets at December 31, 2021 and 2020. The valuation allowance was $19.0 million and $16.4 million as of December 31, 2021 and 2020, respectively.

The components of the Company’s deferred tax asset are as follows:

	December 31,
	2021		2020
	(in thousands)
Deferred tax assets – non-current
Accrued bonuses	$	63	$	53
Accrued vacation		26		24
Net operating loss (NOL) carryover		14,975		12,876
Research & development tax credits		3,353		2,902
Share based expense		572		472
Other		4		4
Right of use lease liability		49		69
Fixed asset depreciation		43		55
Total deferred tax asset		19,085		16,455
Less: valuation allowance		(19,042)		(16,395)
Net deferred tax asset		43		60
Right of use asset		(43)		(60)
Net deferred tax asset	$	—	$	—

Reconciliation between income taxes at the statutory tax rate (21%) and the actual income tax provision for continuing operations follows:

	December 31,
	2021		2020
	(in thousands)
Loss before income taxes	$	(10,440)	$	(10,882)
Tax (benefit) at statutory tax rate		(2,193)		(2,285)
Effects of:
Exclusion of incentive stock option expense		73		50
R&D tax credits		(451)		(832)
Increase (decrease) in valuation allowance		2,648		2,990
Other		(77)		77
Provision for income taxes	$	—	$	—

As of December 31, 2021, the Company had no unrecognized income tax benefits. The Company’s policy for classifying interest and penalties associated with unrecognized income tax benefits is to include such items as tax expense. No interest or penalties have been recorded as of the year ended December 31, 2021, and no interest or penalties have been accrued as of December 31, 2021 and 2020, respectively.

The Company’s open years for Internal Revenue Service (IRS) examination purposes due to normal statute of limitation are 2018, 2019 and 2020. However, since the Company has operating loss carryforwards, the IRS has the ability to make adjustments to items that originate in a year otherwise barred by the statute of limitations under Section 6501 of the Internal Revenue Code of 1986, as amended, in order to redetermine tax for an open year to which those items are carried. Therefore, in a year in which a net operating loss deduction was claimed, the IRS may examine the year in which the net operating loss was generated and adjust it accordingly for purposes of assessing additional tax in the year the net operating loss was claimed. The Company is not currently under examination by the IRS or any other taxing authorities.