Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

9 . Income Taxes

The provision (benefit) for income taxes consists of the following:

	Year Ended December 31,
(In thousands)	2019			2018
Federal		—			—
State		—			—
Total current tax provision		—			—
Federal		(1,541	)		—
State		—			—
Total deferred tax provision		(1,541	)		—
Provision (benefit) for income taxes	$	(1,541	)		—

In connection with the

2019

SAVSU Acquisition, the Company recognized a deferred tax liability of

$1.5

million on acquired intangible assets. As a result, the Company recorded an income tax benefit of

$1.5

million for the release of valuation allowance on our existing U.S. deferred tax assets as a result of the offset of deferred tax liabilities established for intangible assets from the acquisition.

A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operations follows:

	Year Ended December 31,
(In thousands)	2019			2018
Tax on net income at federal statutory rate		21	%		21	%
Change in valuation allowance		(5	%)		2	%
Stock-based compensation		74	%		3	%
Section 162(m) limitation on executive compensation		(17	%)		(1	%)
Book loss on equity method investment		(5	%)		(1	%)
Fair value change in warrant liability		(82	%)		(24	%)
Gain on stock acquisition		64	%		—	%
Transaction costs		(4	%)		—	%
Tax credits		5	%		—	%
Expired net operating losses		(5	%)		—	%
Other		1	%		—	%
Total		47	%		—	%

The principal components of the Company’s net deferred tax assets are as follows:

	December 31,
(In thousands)	2019			2018
Deferred tax assets related to:
Net operating loss carryforward	$	9,495		$	7,381
Stock-based compensation		1,110			664
Accruals and reserves		192			181
Inventory		88			42
Lease liabilities		208			101
Tax credit carryforward		152		––
Other		4		––
Total deferred tax assets		11,249			8,369
Deferred tax liabilities related to:
Intangibles		(2,217	)	––
Right-of-use assets		(218	)	––
Fixed assets		(108	)		(24	)
Total deferred tax liabilities		(2,543	)		(24	)
Total deferred taxes		8,706			8,345
Less: valuation allowance		(8,706	)		(8,345	)
Net deferred taxes	––			––

The Company maintains a full valuation allowance on its net deferred tax assets. The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more likely than

not

that deferred tax assets are recoverable. In making this assessment, significant weight is given to evidence that can be objectively verified. In its evaluation, the Company considered its cumulative book losses,

not

including transaction gains, as significant negative evidence. Based upon a review of the

four

sources of income identified within ASC

740,

“Accounting for Income Taxes”, the Company determined that the negative evidence outweighed the positive evidence and a full valuation allowance on its deferred tax assets will be maintained. The Company will continue to assess the realizability of its deferred tax assets going forward and will adjust the valuation allowance as needed. Our valuation allowance increased by

$0.4

million from

2018

to

2019,

primarily due to increases in the net operating loss carryforwards and stock compensation deferred tax assets offset by an increase in the deferred tax liabilities for intangibles. Our valuation allowance decreased by

$0.4

million from

2017

to

2018,

primarily due to a decrease in the deferred tax asset for net operating loss carryforwards.

The Company determines its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than

not

to be sustained upon examination by the relevant income tax authorities. The Company is generally subject to examination by U.S. federal and local income tax authorities for all tax years in which loss carryforward is available.

The Company applies judgment in the determination of the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. As of

December 31, 2019,

the Company had

no

uncertain tax positions.

As of

December 31, 2019,

the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately

$44.7

million, which is available to reduce future taxable income. Approximately

$34.9

million of NOL will expire from

2020

through

2036,

and approximately

$9.8

million of NOL will be carried forward indefinitely. The NOL carryforwards

may

become subject to an annual limitation in the event of certain cumulative changes in the ownership interest. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The Company is planning to complete a study during

2020

to determine whether the net operating losses are subject to such limitations. Subsequent ownership changes

may

further affect the limitation in future years.