Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 12—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): 

	2023		2022		2021
Current:
Federal	$	—	$	—	$	—
State		905		363		77
Foreign		178		92		247
		1,083		455		324
Deferred:
Federal		—		—		—
State		—		—		—
		—		—		—
Total	$	1,083	$	455	$	324

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 $4.2 million of tax expense for the year ended December 31, 2023 is due to stock-based compensation expense shortfall and the expiration of vested stock options. Approximately $1.8 million of the tax benefit for the year ended December 31, 2023 is due to R&D tax credits, net of an approximately $0.5 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):

	2023			2022			2021
Tax computed at the federal statutory rate	$	4,488		$	96		$	(6,045	)
State taxes		1,312			485			(1,072	)
Foreign taxes		178			92			247
Permanent items		4,837			6,864			22,689
R&D credits		(1,806	)		(1,490	)		(3,941	)
Prior year adjustment		(1,715	)		(455	)		916
Change in valuation allowance		(6,211	)		(5,137	)		(12,470	)
Total provision	$	1,083		$	455		$	324

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):

	2023			2022			2021
Deferred tax assets:
Net operating loss carry forwards	$	240,960		$	253,544		$	258,390
Business credit carryforwards		62,051			59,726			59,514
Organization costs
Compensation		37,946			37,876			40,647
Sec 174 R&D expenses		19,882			10,371
Accrued legal verdict		261			3,878			14,144
Carryforward of disallowed interest		1,477			4,761			4,537
Accrued expenses		1,976			50			104
Lease liabilities		3,034			4,035			4,839
Other		4,231			3,560			1,306
Subtotal		371,818			377,801			383,481
Deferred tax liabilities:
Lease right-of-use assets		(1,997	)		(2,870	)		(3,470	)
Inventory		(921	)		242			406
Other deferred tax liabilities		(149	)		(211	)		(318	)
Subtotal		(3,067	)		(2,839	)		(3,382	)
Total deferred tax assets		368,751			374,962			380,099
Valuation allowance		(368,751	)		(374,962	)		(380,099	)
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 $6.2 million and approximately $5.1 million for the years ended December 31, 2023 and 2022, respectively. At December 31, 2023, the Company had federal and state net operating loss carryforwards, respectively, of approximately $874.2 million and approximately $839.1 million, which will begin to expire in 2033. At December 31, 2023, the Company also has federal research and development credit carryforwards of approximately $39.7 million. If not utilized, the carryforwards will begin to expire in 2033. The Company has state research and development credit carryforwards of approximately $25.1 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 2023. 

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

	2023			2022			2021
Unrecognized tax benefits - January 1	$	2,522		$	4,261		$	3,276
Gross decreases - tax positions in a prior period		(163	)		(2,113	)		—
Gross increases - tax positions in a current period		452			374			985
Unrecognized tax benefits - December 31		2,811			2,522			4,261

During the year ended December 31, 2023, 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 2010 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.