Annual report pursuant to Section 13 and 15(d)

Income Tax

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

Note 10 – Income Tax

 

The Company did not record any income tax provision for the years ended December 31, 2021 and 2020 due to the Company’s net losses. The Company files income tax returns in the United States (“Federal”) and California, Minnesota and Massachusetts (“State”) jurisdictions. The Company is subject to Federal and State income tax examinations by tax authorities for all years since its inception. At December 31, 2021, the Company had Federal and State net operating loss carry forwards available to offset future taxable income of approximately $195 million. These carry forwards will begin to expire in the year ending December 31, 2030, subject to IRS limitations, including change in ownership. The Company periodically evaluates the likelihood of the realization of deferred tax assets, and adjusts the carrying amount of the deferred tax assets by a valuation allowance to the extent the future realization of the deferred tax assets is not judged to be more likely than not. The Company considers many factors when assessing the likelihood of future realization of our deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the carry-forward periods available to us for tax reporting purposes, and other relevant factors.

 

 

At December 31, 2021 and 2020, based on the weight of available evidence, including cumulative losses in recent years and expectations of future taxable income, the Company determined that it was more likely than not that its deferred tax assets would not be realized. Accordingly, the Company has recorded a valuation allowance for 100% of its cumulative deferred tax assets. The components of our deferred tax assets are as follows.

 

Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating losses and tax credit carryforwards. The significant components of net deferred income tax assets for the Company are (in thousands):

 

                 
    December 31,  
    2021     2020  
Deferred tax assets:                
Federal net operating loss carryforward   $ 58,167     $ 39,340  
Stock based compensation and other items     7,622       4,779  
Intellectual property     62,055       58,504  
Patent amortization     4       4  
Deferred tax assets before valuation     127,848       102,627  
Valuation allowance     (127,848 )     (102,627 )
Net deferred income tax assets   $ -     $ -  

 

Generally accepted accounting principles requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s history of operating losses, management has provided a valuation allowance equal to its net deferred tax assets.

 

A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income tax provision is as follows for the year ended:

 

    December 31,  
    2021     2020  
Federal statutory income tax rate     21 %     21 %
State tax, net of federal benefit     9 %     7 %
Change in valuation allowance on net operating loss carryforwards     (30 )%     (28 )%
Effective income tax rate     0 %     0 %