Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 9 – INCOME TAXES

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, management reviews both positive and negative evidence, including current and historical results of operations, future income projections and the overall prospects of our business. Based upon management's assessment of all available evidence, we believe that it is more-likely-than-not that the deferred tax assets will not be realizable, and therefore, a valuation allowance has been established. The valuation allowance for deferred tax assets was approximately $418.3 million and $400.4 million as of December 31, 2023 and 2022, respectively.

The Tax Cuts and Jobs Act of 2017 (TCJA) included changes to the treatment of research and development expenses under IRC Section 174. Formerly, a company could deduct research and development expenses under IRC Section 174 as incurred. Effective for tax years beginning after December 31, 2021, research and development expenses under IRC Section 174 are required to be capitalized, with an amortization period of 5 years for costs incurred in the U.S. and 15 years for costs incurred in a non-U.S. jurisdiction. The Company incurred approximately $61.8 million of U.S. research and development costs and approximately $13.9 million of non-U.S. research and development costs that were capitalized during the year ended December 31, 2023.

The Inflation Reduction Act of 2022 (IRA) was enacted on August 16, 2022. The IRA provided for a Corporate Alternative Minimum Tax (Corp AMT), applicable to tax years beginning after December 31, 2022. The Corp AMT will impose a 15% tax on companies with adjusted financial statement income of over $1 billion for US-based organizations. At this time, it is not anticipated that the Corp AMT will be applicable for the Company.

As of December 31, 2023, we have U.S. net operating loss carryforwards of approximately $1.4 billion , research and development credit carryforwards (R&D credits) of approximately $45.8 million and business interest expense carryforward of $14.5 million. For income tax purposes, these NOLs and R&D credits will expire in various amounts through 2040. NOLs generated after 2017 and the business interest expense carryforwards do not expire. The Tax Reform Act of 1986 contains provisions which limit the ability to utilize net operating loss carryforwards and R&D credit carryforwards in the case of certain events including significant changes in ownership interests. The Exchange Transaction with TG Bio may have resulted in a “change in ownership” as defined by IRC Section 382 of the Internal Revenue Code of 1986, as amended. Additionally, stock issuance activities may have resulted in a “change in ownership” as defined by IRC Section 382 of the Internal Revenue Code of 1986, as amended. Accordingly, a substantial portion of the Company’s NOLs above may be subject to annual limitations in reducing any future year’s taxable income, and a substantial portion of the R&D Credit carryforwards may be subject to annual limitations in reducing any future year’s tax.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2023 and 2022 are presented below.

(in thousands)	2023			2022
Deferred tax assets:
Net operating loss carryforwards	$	316,962		$	303,729
Research and development credit		45,806			42,031
Noncash compensation		12,275			10,325
Disallowed interest		3,328			3,882
Capitalized R&D Expenses		36,613			39,411
Other		3,333			985
Deferred tax asset, excluding valuation allowance		418,317			400,363
Less valuation allowance		(418,317	)		(400,363	)
Net deferred tax assets	$	—		$	—

There was approximately $0.4 million of current income tax expense for the year ended December 31, 2023. Income tax expense differed from amounts computed by applying the US federal income tax rate of 21% for the years ending December 31, 2023, 2022 and 2021, to pretax income (loss) as follows:

	For the year ended December 31,
(in thousands)	2023			2022			2021
Loss before income taxes, as reported in the consolidated statements of operations	$	13,062		$	(198,335	)	$	(348,101	)
Computed “expected” tax benefit	$	2,743		$	(41,650	)	$	(73,101	)
Increase (decrease) in income taxes resulting from:
Expected benefit from state and local taxes		111			(7,242	)		(3,445	)
Research and development credits		(3,430	)		(6,389	)		(8,337	)
Officer Compensation Limitation		1,167			4,391			439
Other		(179	)		374			428
Stock options		(12,445	)		17,599			(6,726	)
Change in state tax rates		(5,531	)		-			-
Change in the balance of the valuation allowance for deferred tax assets		17,954			32,917			90,742
	$	390		$	—		$	—

We file income tax returns in the U.S federal and various state and local jurisdictions. With certain exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years prior to 2020. However, NOLs and tax credits generated from those prior years could still be adjusted upon audit.

The Company would recognize interest and penalties, if any, to uncertain tax position in income tax expense in the statement of operations. There was no accrual for interest and penalties related to uncertain tax positions for 2023. We do not believe that there will be a material change in our unrecognized tax positions over the next twelve months. All of the unrecognized tax benefits, if recognized, would be offset by the valuation allowance.