Annual report pursuant to Section 13 and 15(d)

Income Taxes

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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block] Income TaxesThe Company had no income tax expense for the years ended December 31, 2021 and 2020. Due to uncertainties surrounding the realization of its deferred income tax assets in future periods, the Company has recorded a 100% valuation allowance against its net deferred income tax assets. If it is determined in the future that it is more likely than
not that any deferred income tax assets are realizable, the valuation allowance will be reduced by the estimated net realizable amounts. For the years ended December 31, 2021 and 2020, the valuation allowance increased by $4.8 million and $0.7 million, respectively, based on changes in deferred tax assets and liabilities.
Years Ended December 31,
(in thousands) 2021 2020
Income tax benefit at federal statutory rate $ (3,060) $ (1,420)
Adjustments for tax effects of:
State income tax, net of federal benefit (1,560) (388)
Permanent adjustments 114  68 
Other (9) 4 
Share based compensation (1,999) (42)
Net operating loss write-off 1,649  1,252 
Paycheck Protection Program loan forgiveness —  (188)
Change in valuation allowance 4,865  714 
Income tax expense $ —  $ — 
The tax effect of temporary differences and net operating losses that give rise to components of deferred income tax assets and liabilities consist of the following:
Years Ended December 31,
(in thousands) 2021 2020
Deferred income tax assets:
Net operating loss carryforwards $ 26,379  $ 21,547 
Share based compensation 2,083  2,118 
Accrued expenses 860  841 
Other 69  58 
29,391  24,564 
Less valuation allowance (29,324) (24,459)
Total deferred income tax assets 67  105 
Deferred tax liability - depreciation (67) (105)
Net deferred tax assets $ —  $ — 
In assessing the realizability of 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. Generally, the ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. Based on all relevant factors, a valuation allowance of $29.3 million has been established against deferred tax assets as of December 31, 2021 as management determined that it is more likely than not that sufficient taxable income will not be generated to realize those temporary differences.
At December 31, 2021, the Company had cumulative federal and state net operating losses of approximately $106 million and $57 million, respectively, available to reduce future taxable income, if any. The federal net operating loss carryforward begins expiring in 2021, and the state net operating loss carryforward begins expiring in 2028. It is possible that the Company will not generate taxable income in time to use these net operating loss carryforwards before their expiration. In addition, under Section 382 of the Internal Revenue Code of 1986 (the “Code”), as amended, if a corporation undergoes an “ownership change” (as defined in the Code), the corporation’s ability to use its pre-change tax attributes to offset its post-change income may be limited. In general, an “ownership change” occurs if there is a cumulative change in a “loss corporation’s” (as defined in the Code) ownership by 5% shareholders that exceeds 50 percentage points over a rolling three-year period. The Company has not determined whether such an ownership change has occurred. However, given the equity transactions in which the Company has engaged, the Company believes that the use of the net operating losses shown as deferred tax assets will be significantly limited.
Management has evaluated the effect of guidance provided by GAAP regarding accounting for uncertainty in income taxes and determined the Company has no uncertain tax positions that could have a significant impact on its
consolidated financial statements. The Company’s federal income tax return for 2018 and subsequent years remain open for examination.