Annual report pursuant to Section 13 and 15(d)

Income taxes

v3.22.1
Income taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income taxes Income taxes
For the year ended December 31, 2021, the Company recorded income tax expense of less than $0.1 million. For the year ended December 31, 2020, the Company recorded no income tax expense. For the years ended December 31, 2021 and 2020, the Company's effective tax rate was 1% and 0%, respectively. The Company’s effective tax rate differs from the U.S. federal statutory rate of 21% due to permanent differences attributable to the change in the fair value of the warrant liabilities and because the Company’s losses have been fully offset by a valuation allowance due to uncertainty of realizing the tax benefit of net operating losses (“NOLs”) for the years ended December 31, 2021 and 2020.
The following table is a reconciliation of the components that caused the Company's provision for income taxes to differ from amounts computed by applying the U.S. federal statutory rate of 21% (in thousands):
Years Ended December 31,
2021 2020
Statutory U.S. Federal income tax $ 719  21.0  % $ (12,482) 21.0  %
State income taxes, net (650) (19.0) % (1,720) 2.9  %
Change in valuation allowance 2,371  69.2  % 8,811  (14.8) %
Warrant valuation (4,927) (143.9) % 4,763  (8.0) %
Tax effect of non-deductible equity instruments 2,340  68.4  % 2,000  (3.4) %
Return to provision adjustment 20  0.6  % (1,571) 2.6  %
Other 164  4.8  % 199  (0.3) %
Total provision $ 37  1.1  % $ —  0.0  %
Deferred income 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.
Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
December 31,
2021 2020
Deferred income tax assets:
Net operating loss carryforwards $ 15,049  $ 11,185 
ROU assets 14  81 
Share-based compensation 4,668  5,728 
Inventory 106  212 
Other assets 2,021  2,595 
Gross deferred tax assets 21,858  19,801 
Valuation allowance (19,095) (16,724)
Net deferred tax assets $ 2,763  $ 3,077 
Deferred income tax liabilities:
Operating lease liabilities (13) (79)
Intangibles (2,774) (2,998)
Deferred tax liabilities, net of valuation allowance $ (24) $ — 
As of December 31, 2021, the Company had a deferred tax asset (before valuation allowance) recorded on gross federal and state net operating loss carryforwards of approximately $59.0 million and $53.4 million, respectively. The net operating losses will begin to expire in 2025.
The Internal Revenue Code, as amended (“IRC”), imposes restrictions on the utilization of NOLs and other tax attributes in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use pre-change NOLs may be limited as prescribed under IRC Section 382. Events which may cause limitation in the amount of the NOLs and credits that can be utilized annually include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets in the future. A significant piece of objective negative evidence evaluated was the cumulative loss incurred through the years ended December 31, 2021 and 2020. Such objective evidence limits the ability to consider other subjective positive evidence such as current year taxable income and future income projections. On the basis of this evaluation, as of December 31, 2021, a valuation allowance of $19.1 million was recorded since it is more likely than not that the deferred tax assets will not be realized.
Changes in valuation allowance are as follows (in thousands):
Years Ended December 31,
2021 2020
Valuation allowance, at beginning of year $ 16,724  $ 7,913 
Increase in valuation allowance 2,371  8,811 
Valuation allowance, at end of year $ 19,095  $ 16,724 
The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company does not expect the impact to be material.
As of December 31, 2021 and 2020, the Company does not have any significant uncertain tax positions and as of December 31, 2021 and 2020, the Company had no accrued interest and penalties related to uncertain income tax positions. The Company does not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months. If incurred, the Company would classify interest and penalties on uncertain tax positions as income tax expense.
The Company is subject to taxation in the U.S. federal and various state jurisdictions. The Company is not currently under audit by any taxing authorities. The Company remains open to examination by tax jurisdictions for tax years beginning with the 2018 tax year for federal and 2017 for states. Federal and state net operating losses are subject to review by taxing authorities in the year utilized and future years.