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Note 18 - Income Taxes
 12 Months Ended
Dec. 31, 2022
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

NOTE 18. INCOME TAXES

 

For the years ended December 31, 2022 and 2021, loss before provision for income taxes consisted of the following (in thousands):

 

  

For the Years Ended December 31,

 
  

2022

  

2021

 

United States

 $(10,608

)

 $(5,824

)

International

  —   — 
  $(10,608

)

 $(5,824

)

 

For the years ended December 31, 2022 and 2021, the federal and state income tax provision is summarized as follows (in thousands):

 

  

For the Years Ended December 31,

 
  

2022

  

2021

 

Current

        

Federal

 $—  $— 

State

  —   — 

Other

  —   — 

Total current tax expense

 $—  $— 
         
         

Deferred

        

Federal

  —   — 

State

  —   — 

Other

  —   — 

Total deferred tax expense

 $—  $— 
         

Income tax provision

 $—  $— 

 

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

 

The tax effects of significant items comprising the Company's deferred taxes as of December 31, 2022 and 2021 are as follows (in thousands):

 

  

For the Years Ended December 31,

 
  

2022

  

2021

 

Deferred tax assets:

        

Net operating losses

  $35,234  $33,455 

Stock options

  750   884 

Research and development credits

  641   641 

Accruals

  464   306 

Operating lease liabilities

  472   19 

Property and equipment

  13   10 

Other deferred tax assets

  331   376 

Total deferred tax assets

  37,905   35,691 

 

 

Deferred tax liabilities:

        

Operating lease right-of-use assets

  (472

)

  (19

)

Total deferred tax liabilities

  (472

)

  (19

)

         

Valuation allowance

  (37,433

)

  (35,672

)

Net deferred taxes

 $—  $— 

 

ASC 740, Income Taxes, requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not”. Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Because of the Company's recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.

 

The valuation allowance increased by $1.8 million and $2.8 million during the years ended December 31, 2022 and 2021, respectively.

 

Net operating loss and tax credit carryforwards as of December 31, 2022, are as follows (in thousands):

 

     

Expiration

  

Amount

 

Years

Net operating losses, federal (Post December 31, 2017)

 $38,087 

Does Not Expire

Net operating losses, federal (Pre January 1, 2018)

 $94,886 

Beginning in 2024

Net operating losses, state

 $111,012 

Beginning in 2028

Tax credits, federal

 $ 542 

Beginning in 2031

Tax credits, state

 $ 125 

Indefinite

 

Effective January 1, 2009, the Company adopted a new accounting standard that provides guidance on accounting for uncertainty in income taxes. The adoption had no effect on the Company's financial statements. A reconciliation of the beginning and ending balances of the unrecognized tax benefits during the below years are as follows (in thousands):

 

   For the Years Ended December 31, 
   2022   2021 

Unrecognized benefit - beginning of period

 $974  $974 

Change during the period

  —   — 

Unrecognized benefit - end of period

 $974  $974 

 

The entire amount of the unrecognized tax benefits would not impact our effective tax rate if recognized. The balance of unrecognized tax benefits increased as a result of a comprehensive analysis to substantiate the company's research and orphan drug credits. Accrued interest and penalties related to unrecognized tax benefits are classified as income tax expense and were immaterial. The Company files income tax returns in the United States and in California. Other jurisdictions are not significant. The tax years 2019 - 2022 remain open in the federal jurisdiction and 2018 - 2022 for California. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions.

 

The effective tax rate of the Company's provision (benefit) for income taxes differs from the federal statutory rate as follows:

 

 

For the Years Ended December 31,

 
 

2022

 

2021

 

Statutory rate

21.0

% 21.0

%

State tax

7.9% 11.2

%

Change in valuation allowance

 (48.0

%)

 (47.7

%)

Warrant/equity expenses

20.2% 16.7

%

Stock-based compensation expense

 (4.2

%)

 (1.1

%)

Other

 (0.1

%)

 (0.1

%)

Change in value of earnout3.2% —

%

Total

0.0% 0.0

%