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Note 13 - Income Taxes
12 Months Ended
Dec. 31, 2022
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 13—Income Taxes

 

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, Income Taxes. Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. Income tax expense was as follows for the years ended December 31 (in thousands): 

 

   

2022

   

2021

   

2020

 

Current:

                       

Federal

  $     $     $  

State

    363       77       124  

Foreign

    92       247       83  
      455       324       207  

Deferred:

                       

Federal

                 

State

                 
                   

Total

  $ 455     $ 324     $ 207  

 

The provision for income taxes in the accompanying consolidated statements of operations differs from the amount calculated by applying the statutory income tax rate to income (loss) from continuing operations before income taxes. Approximately $6.4 million of tax expense for the year ended December 31, 2022 is due to stock-based compensation expense shortfall and the expiration of vested stock options. Approximately $1.5 million of the tax benefit for the year ended December 31, 2022 is due to R&D tax credits, net of an approximately $0.4 million reserve related to unrecognized tax benefits for the method of allocation of expenses used in the R&D tax credits calculation. The primary components of such differences are as follows as of December 31 (in thousands):

 

 

2022

 

2021

 

2020

 

Tax computed at the federal statutory rate

$ 96   $ (6,045 ) $ (12,540 )

State taxes

  485     (1,072 )   (2,304 )

Foreign taxes

  92     247     83  

Permanent items

  6,864     22,689     13,660  

R&D credits

  (1,490 )   (3,941 )   (5,231 )

Prior year adjustment

  (455 )   916     (2,116 )

Change in valuation allowance

  (5,137 )   (12,470 )   8,655  

Total provision

$ 455   $ 324   $ 207  

 

Temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes give rise to the Company’s deferred income taxes. The components of the Company’s net deferred tax assets are as follows as of December 31 (in thousands):

 

   

2022

   

2021

   

2020

 

Deferred tax assets:

                       

Net operating loss carry forwards

  $ 253,544     $ 258,390     $ 261,472  

Business credit carryforwards

    59,726       59,514       55,574  

Organization costs

                       

Compensation

    37,876       40,647       58,112  

Sec 174 R&D expenses

    10,371              

Accrued legal verdict

    3,878       14,144       11,880  

Carryforward of disallowed interest

    4,761       4,537       3,093  

Accrued expenses

    50       104       561  

Lease liabilities

    4,035       4,839       5,657  

Other

    3,560       1,306       804  

Subtotal

    377,801       383,481       397,153  

Deferred tax liabilities:

                       

Lease right-of-use assets

    (2,870 )     (3,470 )     (4,099 )

Inventory

    242       406       (21 )

Other deferred tax liabilities

    (211 )     (318 )     (464 )

Subtotal

    (2,839 )     (3,382 )     (4,584 )

Total deferred tax assets

    374,962       380,099       392,569  

Valuation allowance

    (374,962 )     (380,099 )     (392,569 )

Net deferred tax assets

  $     $     $  

 

As the ultimate realization of the potential benefits of the Company’s deferred tax assets is considered unlikely by management, the Company has offset the deferred tax assets attributable to those potential benefits through valuation allowances. Accordingly, the Company did not recognize any benefit from income taxes in the accompanying consolidated statements of operations to offset its pre-tax losses. The valuation allowance decreased by approximately $5.1 million and approximately $12.5 million for the years ended December 31, 2022 and 2021, respectively. At December 31, 2022, the Company had federal and state net operating loss carryforwards, respectively, of approximately $927.9 million and approximately $865.5 million, which will begin to expire in 2033. At December 31, 2022, the Company also has federal research and development credit carryforwards of approximately $38.0 million. If not utilized, the carryforwards will begin to expire in 2033. The Company has state research and development credit carryforwards of approximately $24.3 million which do not expire. Pursuant to the Internal Revenue Code, Sections 382 and 383, use of the Company’s net operating loss and credit carryforwards could be limited if a cumulative change in ownership of more than 50% occurs within a three-year period. The Company performed an initial assessment of the potential limitation on net operating loss and credit carryforwards, and concluded that there will be no limitation for the tax year 2022. 

 

 

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits at December 31 (in thousands):

 

   

2022

   

2021

   

2020

 

Unrecognized tax benefits - January 1

  $ 4,261     $ 3,276     $ 1,968  

Gross decreases - tax positions in a prior period

    (2,113 )            

Gross increases - tax positions in a current period

    374       985       1,308  

Unrecognized tax benefits - December 31

    2,522       4,261       3,276  

 

During the year ended December 31, 2022, the Company completed an R&D credit study. As a result of the study, the Company computed the credit under safe harbor rules, which when applied consistently, results in a more conservative approach of calculating the amount of the R&D credit. The Company concluded that a release of uncertain tax benefits for the portion of the R&D credit attributable to safe harbor was appropriate, and released a portion of previously recorded uncertain tax positions reserve. 

 

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by the federal and state jurisdictions where applicable. There are currently no pending income tax examinations. The Company’s tax years for 2007 and forward are subject to examination by the federal and California tax authorities due to the carryforward of unutilized net operating losses and research and development credits.