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

(12)

Income Taxes

 

Our provision for income taxes for the years ended December 31, 2023 and 2022 was $0 for both years.  

 

The provision for income taxes differs from the amount which would result by applying the federal statutory income tax rate to pre-tax loss for the years ended December 31, 2023 and 2022. The reconciliation of the provision computed at the federal statutory rate to the Company’s provision (benefit) for income taxes was as follows (in thousands):

 

   

Years ended December 31,

  
   

2023

    

2022

  

Tax at federal statutory rate

   $ (2,430 )   $ (2,500 )

State, net of federal benefit

     (342 )     (190 )

Research and development credit

     (267 )     (291 )

Share-based compensation

     178       101  

Net operating loss expiration

     130       —  

Other

     3       —  

Change in valuation allowance

     2,728       2,880  

Total provision for income taxes

   $ —     $ —  

 

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as net operating loss and tax credit carryforwards, net of any adjustment for unrecognized tax benefits. The components of the net deferred income tax assets as of December 31, 2023 and 2022 were as follows (in thousands):

 

   

Years ended December 31,

  
   

2023

    

2022

  

Accrued compensation

   $ 147     $ 189  

Inventory adjustments

     33       24  

Depreciation and amortization

     13       17  

Share-based compensation

     806       569  

Net operating loss and tax credit carryforwards

     32,910       31,499  

Research and development capitalization

     2,784       1,674  

Other

     19       12  

Gross Deferred Tax Asset

     36,712       33,984  

Valuation Allowance

     (36,712 )     (33,984 )

Net deferred tax asset

   $ —     $ —  

 

We had approximately $113.5 million and $65.2 million of federal and state net operating loss (NOL) carryforwards, respectively, as of December 31, 2023. For tax reporting purposes, operating loss carryforwards are available to offset future taxable income; such carryforwards expire in varying amounts beginning in 2023 and 2029 for federal and state purposes, respectively, with 2018-2023 federal NOLs having no expiration date. Under current federal and California law, the amounts of and benefits from net operating losses carried forward may be impaired or limited in certain circumstances. Events which may cause limitations in the amount of net operating losses that we may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period.

 

 

Generally, utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of the Code, which discusses limitations on NOL carryforwards and certain built-in losses following ownership changes, and Section 383 of the Code, which discusses, special limitations on certain excess credits, etc., and similar state provisions. Accordingly, our ability to utilize net operating loss carryforwards and tax credit carryforwards may be limited, potentially significantly, as the result of such an “ownership change.” We have not yet performed a comprehensive study to determine if it has undergone any ownership changes. If we are able to potentially utilize our net operating loss carryforwards and tax credit carryforwards, we will perform a comprehensive Section 382 and 383 study to determine what, if any, limitation on its ability to utilize our NOLs exists. 

 

As of December 31, 2023, we had federal and state research and development credits of approximately $3.9 million and $2.8 million available to offset future federal and state income taxes, respectively. The federal tax credit carryforward expires beginning in 2029. The state credit carryforwards have no expiration.

 

We do not believe that these assets are realizable on a more likely than not basis; therefore, the net deferred tax assets have been fully offset by a valuation allowance. We did not have deferred tax liabilities as of December 31, 2023 or 2022. The net increases in the total valuation allowance of approximately $2.7 million and $2.9 million for the years ended December 31, 2023 and 2022, respectively, was primarily from the net operating losses generated. No liability related to uncertain tax positions is reported in the financial statements. 

 

The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in thousands): 

 

   

Years ended December 31,

  
   

2023

    

2022

  

Balance, beginning of year

   $ 1,519     $ 1,368  

Additions based on tax positions related to the current year

     158       151  

Balance, end of year

   $ 1,677     $ 1,519  

 

Recognition of approximately $1.2 million and $1.1 million of unrecognized tax benefits would impact the effective rate at December 31, 2023 and 2022, respectively, if recognized. Increases in 2023 relate to increased research and development activity.