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Note 9 - Income Taxes
 12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

9. Income taxes

 

The Company is subject to federal and state income taxes in the United States. For the years ended December 31, 2023 and 2022, the provision for income taxes on income (loss) from operations consisted of the following:

 

  

Year Ended December 31

 

(In thousands)

 

2023

  

2022

 

Current:

        

Federal

 $(24) $1,392 

State

  (70)  606 

Foreign

  123   3 

Total current

  29   2,001 

Deferred:

        

Federal

  (3,352)  (3,730)

State

  (462)  (537)

Foreign

  20   1 

Less: valuation allowance

  3,649   4,041 

Total deferred

  (145)  (225)

Total income tax expense (benefit)

 $(116) $1,776 

 

For the years ended December 31, 2023 and 2022, the provision for income taxes differs from the amounts computed by applying the applicable federal statutory rates as follows:

 

  

Year Ended December 31,

 

(In thousands)

 

2023

  

2022

 

Federal income taxes at the statutory rate

 $(13,300)  21.0% $(25,527)  21.0%

Share-based compensation shortfall (windfall)

  13   (0.0)  8   (0.0)

Effect of state taxes, net of federal tax benefit

  (517)  0.8   (2)  0.0 

Non-deductible items

  (421)  0.7   1,070   (0.9)

Goodwill impairment

  9,491   (15.0)  23,184   (19.1)

Return to provision adjustment

  2,731   (4.3)  493   (0.4)

Foreign rate difference

  16   (0.0)  1   (0.0)

Deferred only adjustments

  197   (0.3)  444   (0.4)

Research and development credit

  (1,992)  3.1   (1,960)  1.6 

Other

  17   (0.0)  24   (0.0)

Change in valuation allowance

  3,649   (5.8)  4,041   (3.3)

Income tax expense (benefit)

 $(116)  0.2% $1,776   (1.5)%

 

Under the Tax Cuts and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S. tax purposes effective January 1, 2022. The mandatory capitalization requirement increases the Company's deferred tax assets before valuation allowance and cash taxes payable.

 

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. As of December 31, 2023 and 2022, the significant components of deferred tax assets and (liabilities) consist of the following:

 

(In thousands)

 

December 31, 2023

  

December 31, 2022

 

Deferred tax assets:

        

Net operating loss carryforwards

 $1,400  $973 

Share-based compensation

  5,129   5,344 

Capitalized research and experimental expenditures

  3,069   4,088 

Intangible assets, net

  1,415   — 

Tax credits

  1,413   — 

Accrued expense

  1,178   894 

Operating lease liability

  973   1,533 

Interest expense limitation

  589   — 

Accounts receivable, net

  56   136 

Other

  280   — 
   15,502   12,968 

Valuation allowance

  (14,568)  (11,171)

Total deferred tax assets, net of valuation allowance

  934   1,797 
         

Deferred tax liabilities:

        

Operating lease right-of-use asset

  (827)  (1,300)

Property and equipment, net

  (136)  (222)

Intangible assets, net

  —   (407)

Other

  —   (42)
   (963)  (1,971)

Net deferred tax liability

 $(29) $(174)

 

As of December 31, 2023, the Company has state net operating loss carryforwards of $24,216, which begin to expire in 2030. 

 

As of December 31, 2023 and 2022, the Company recorded a full valuation allowance against its net deferred tax assets of $14,568 and $11,171, respectively, which is driven by the movement in the net deferred tax assets. For the year ended December 31, 2023, the movement in the net deferred tax assets are primarily a result of the capitalized research and experimental expenditures, an increase in the tax basis of amortizable intangibles, and utilization of federal and state net operating losses. The Company intends to continue maintaining a full valuation allowance on these net deferred tax assets until there is sufficient evidence to support the release of all or some portion of these allowances. Release of some or all of the valuation allowance would result in the recognition of certain deferred tax assets and an increase in deferred tax benefit for any period in which such a release may be recorded, however, the exact timing and amount of any valuation allowance release are subject to change, depending upon the level of profitability that the Company is able to achieve and the net deferred tax assets available.

 

The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company files tax returns in federal and certain state and local jurisdictions. The periods subject to examination are generally for tax years ended 2019 through 2022, including the following major jurisdictions: U.S. Federal, New York State, and New York City. Due to utilization of net operating losses in subsequent periods with open statutes, tax years 2015 and forward remain open to examination by Federal taxing authorities until the statute is closed on the tax year in which the net operating loss was utilized.

 

 

For the years ended December 31, 2023 and 2022, reconciliation of the gross amounts of unrecognized tax benefits, excluding accrued interest and penalties, consists of the following:

 

  

Year Ended December 31,

 

(In thousands)

 

2023

  

2022

 

Unrecognized tax benefits, opening balance

 $1,480  $1,480 

Change in unrecognized tax benefits

  —   — 

Unrecognized tax benefits, ending balance

 $1,480  $1,480 

 

If the Company’s tax positions are ultimately sustained, the Company’s liability would be reduced by $1,480, all of which would impact the Company’s tax provision. The Company is reasonably certain that all of its uncertain tax positions will reverse within the next twelve months due to the closing of the statute of limitations.