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

Note 13. Income Taxes

The Company’s income tax provision for the years ended December 31, 2021 and 2020, consists of the following (in thousands):

Current

 

 

December 31,

 

 

 

2021

 

 

2020

 

Federal

 

$

—

 

 

$

6

 

Foreign

 

 

16

 

 

 

—

 

State

 

 

172

 

 

 

41

 

Provision (benefit) for income taxes

 

$

188

 

 

$

47

 

Deferred tax assets and liabilities reflect the net tax effect of temporary differences between carrying value of assets and liabilities for financial reporting purposes and the tax basis of these assets and liabilities as measured by income tax law. The income tax effect of temporary differences that give rise to deferred tax assets and (liabilities) consist of the following (in thousands):

 

 

December 31,

 

 

 

2021

 

 

2020

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$

35,186

 

 

$

22,208

 

Deferred compensation

 

 

1,812

 

 

 

899

 

Research and development credits

 

 

1,497

 

 

 

1,071

 

Operating lease liability

 

 

405

 

 

 

138

 

Provision for bad debt

 

 

163

 

 

 

75

 

Provision for excess and obsolete inventories

 

 

28

 

 

 

282

 

Other

 

 

104

 

 

 

19

 

Gross deferred tax assets

 

 

39,195

 

 

 

24,692

 

Less: Valuation allowance

 

 

(38,804

)

 

 

(24,543

)

Deferred tax assets, net of valuation allowance

 

 

391

 

 

 

149

 

Operating lease right-of-use assets

 

 

(391

)

 

 

(135

)

Fixed Assets

 

 

—

 

 

 

(14

)

Deferred tax liabilities:

 

 

(391

)

 

 

(149

)

Net deferred tax assets

 

$

—

 

 

$

—

 

Internal Revenue Code (IRC) Section 382 limits the use of federal net operating losses and income tax credit carryforwards in certain situations where changes occur in stock ownership of a company. If the Company should have an ownership change of more than 50% of the value of the Company’s capital stock, utilization of the carryforwards could be restricted.

The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows (in thousands):

 

 

December 31,

 

 

 

2021

 

 

2020

 

Tax at statutory federal rate

 

 

21

%

 

 

21

%

State tax, net of federal benefit

 

 

5

%

 

 

5

%

Research and development credit

 

 

1

%

 

 

1

%

Change in valuation allowance

 

 

(24

)%

 

 

(27

)%

Other

 

 

(3

)%

 

 

—

 

Effective tax rate

 

 

—

 

 

 

—

 

A valuation allowance is recorded when it is more likely than not that some portion of the deferred tax assets will not be realized. As of each reporting date, the Company’s management considers all evidence, both positive and negative, that could affect management’s view with regard to future realization of deferred tax assets. As of December 31, 2021 and 2020, a full valuation allowance for deferred tax assets was recorded as management believes it is more likely than not that all of the deferred tax assets will not be realized in the future. At December 31, 2021, and 2020, the Company has a net

operating loss carryforward for federal income tax purposes of approximately $136.8 million and $85.3 million, respectively. At December 31, 2021 and 2020, the Company has a net operating loss carryforward for state income tax purposes of approximately $126.6 million and $83.5 million, respectively. Net operating losses prior to 2018 of $14.8 million will expire, if not utilized, beginning in 2032 for federal and state income tax purposes.

As of December 31, 2021 and 2020, the Company has federal research and development income tax credit carryforwards of approximately $1.2 million and $0.8 million, respectively. As of December 31, 2021 and 2020, the Company has state research and development income tax credit carryforwards of approximately $0.9 million and $0.9 million, respectively. The Federal income tax credits begin to expire in 2032. The Company has a full valuation allowance on research and development tax credits as of December 31, 2021 and 2020. The state research and development credits can be carried forward indefinitely. The total amount of uncertain tax positions (UTP) on research and development tax credits is $0.6 million and $0.4 million as of December 31, 2021 and 2020, respectively. The Company does not expect any significant change to the UTP balances in the next 12 months.

The following table summarizes the activity related to the unrecognized tax benefits (in thousands):

 

 

December 31,

 

 

 

2021

 

 

2020

 

Unrecognized tax benefits at the beginning of the year

 

$

417

 

 

$

304

 

Additions based on tax positions related to the current year

 

 

163

 

 

 

113

 

 

 

 

 

 

 

 

Additions for tax positions of prior years

 

 

—

 

 

 

—

 

Unrecognized tax benefits at the end of the year

 

$

580

 

 

$

417

 

The Company does not have any material uncertain tax positions as of December 31, 2021 and does not expect any significant change to such balances in the next twelve months.

The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception. Due to the history of net operating losses, the Company’s federal and state tax returns remain open to examination by the tax authorities