Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

14. Income Taxes

Losses before income taxes for the years ended December 31, 2023 and 2022 was as follows:

	Year Ended December 31,
	2023		2022
Domestic	$	(8,568)	$	(15,325)
Foreign		(11,421)		(5,785)
Income/(Loss) before Income Taxes	$	(19,989)	$	(21,110)

The components of income tax benefit consisted of the following for the years ended December 31, 2023 and 2022:

	Year Ended December 31,
	2023		2022
Current:
Federal	$	—	$	—
State		—		2
Foreign		—		—
Total Current		—		2
Deferred:
Federal	$	—	$	—
State		—		—
Foreign		(1,640)		(1,427)
Total Deferred		(1,640)		(1,427)
Provision (Benefit) for income taxes		(1,640)		(1,425)

14. Income Taxes – (continued)

Income tax (benefit) provision related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21% to pretax loss as follows (in thousands):

	Year Ended December 31, 2023				Year Ended December 31, 2022
	Amount		Rate		Amount	Rate
US Federal Statutory Tax Rate	$	(4,198)	21.00	%	(4,433)	21.00	%
State and Local Income Taxes, Net of Federal Income Tax Effect		(532)	2.66	%	(678)	3.22	%
Foreign Tax Effects-Spain
Statutory tax rate difference between Spain and United States		(457)	2.29	%	(231)	1.10	%
Changes in Valuation Allowances		1,332	(6.66)	%	—	0.00	%
Changes in Valuation Allowances		2,291	(11.46)	%	2,901	(13.74)	%
Nontaxable or Nondeductible Items		(187)	0.93	%	575	(2.72)	%
Other Adjustments		111	(0.56)	%	441	(2.11)	%
Effective Tax Rate	$	(1,640)	8.20	%	(1,425)	6.75	%

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets for federal and state income taxes are as follows (in thousands):

	Year Ended December 31,
	2023		2022
Deferred Tax Assets:
Federal, State and Foreign NOL Carryforward	$	27,356	$	22,235
Accrued Compensation		24		29
Stock Issued For Services		957		1,053
Stock Issued for Acquisition of Program		1,457		1,456
Stock Issued for License Agreement		1,124		1,362
Amortizable License Fee		3		4
Capitalized Research & Development costs		2,422		1,592
Total Gross DTA		33,343		27,731
Less: Valuation Allowance		(28,351)		(24,562)
Total Deferred Tax Assets		4,992		3,169
Deferred Tax Liabilities:
IPR&D		(4,939)		(4,787)
ASC 842 Net ROU Assets		(53)		—
Total Gross DTL		(4,992)		(4,787)
Net Deferred Tax Asset (Liability)	$	—	$	(1,618)

14. Income Taxes – (continued)

On March 10, 2022, the Company acquired VCN, a Spanish Company in a tax-free stock acquisition. Due to this acquisition, VCN is a wholly owned subsidiary of the company. As a result of the acquisition, a deferred tax liability was established with purchase accounting related to acquired In Process Research and Development. A deferred tax asset was also established with purchase accounting related to VCN’s unlimited life net operating loss carryover.

At December 31, 2023, the Company has a gross Federal net operating loss carry-forward of approximately $72.7 million available to offset future United States taxable income. In addition, it was determined that the utilization of gross Federal net operating losses of approximately $228.3 million was limited by $155.6. million as a result of change of control ownership changes that occurred under Section 382 of the Internal Revenue Code. State NOL’s are also limited by Section 382 of the Internal Revenue Code and were limited accordingly. At December 31, 2023, the Company has a gross Foreign net operating loss carry forward of approximately $25.2 million USD. The foreign net operating loss carries forward indefinitely.

In 2020, the Company completed an Internal Revenue Code Section 382 analysis of its historical net operating loss carry-forward amount. As a result, the prior year net operating loss carry-forward was limited by $155.6 million. The decrease in the prior year net operating loss is attributable to control ownership changes which were determined for the years 2013 and 2018 which caused the reduction in the value of the historical net operating loss carry-forward amounts. Updated section 382 analysis were performed in 2021, 2022, and 2023 to identify if any additional ownership shifts occurred in these years. The result of the updated Section 382 analysis produced an IRC 382 limit due to the 2021 ownership change. There was no ownership change determined for 2022 or 2023. All previously limited net operating losses remain available for use in future periods.

The Company’s pre-2018 net operating losses expire on various dates through 2037 while the net operating loss carry-forward originating in the 2018 year and later carryforward indefinitely and are subject to additional limitations based on taxable income.

At December 31, 2023, the Company has a gross Foreign net operating loss carryforward of approximately $25.2 million related to its newly acquired Spanish subsidiary, VCN. The net operating loss does not expire and is available to offset future Spanish taxable income.

The Company’s valuation allowance at December 31, 2023 was approximately $28.4 million. The net change in valuation allowance during the year ended December 31, 2023, was an increase of approximately $3.8 million primarily due to increases in gross federal and state deferred tax assets in 2023. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of December 31, 2023 and 2022, management has established a full valuation allowance against its net deferred tax assets in all US tax jurisdictions. The Company has also established a valuation allowance in its Spanish tax jurisdictions as it is no longer in a net deferred tax liability position in Spain.

Undistributed earnings of the Company’s foreign subsidiary, VCN, are considered to be permanently reinvested and, accordingly, no deferred U.S. income taxes have been provided thereon. Upon distribution of any earnings in the form of dividends or otherwise, those earnings would be subject to U.S. income tax. At the present time, VCN does not have any earnings and thus it is not necessary to estimate the amount of U.S. income taxes that might be payable if these earnings were repatriated.

The Company continually evaluates expiring statutes of limitation, audits, proposed settlements, changes in tax law, and new authoritative rulings. Due to the existence of net operating carryforwards since inception, all of the Company’s income tax filings remain open.

We have incurred net operating losses since inception, and we do not have any significant unrecognized tax benefits.