Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 12: INCOME TAXES

The Company accounts for income taxes using the asset and liability method, under which deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. The Company did not record an income tax benefit for its losses incurred for the years ended  December 31, 2022 or 2021, due to uncertainty regarding utilization of its net operating loss carryforwards and due to its history of losses.

The benefit for income taxes differs from the benefit computed by applying the federal statutory rate to loss before income taxes as follows:

	Year Ended December 31,
	2022			2021
Expected federal income tax benefit	$	(5,662	)	$	(4,327	)
Disallowed R&D expenses		351			-
Non-taxable R&D rebate		(156	)		-
Other permanent items		214			81
Return to provision		862			(100	)
Stock-based compensation adjustment		213
Foreign rate differential		(270	)		-
Other		27			-
Recognition of foreign net operating loss carryforwards		-			(557	)
Effect of change in valuation allowance		4,421			4,903
Actual federal income tax benefit	$	-		$	-

The components of net deferred tax assets and liabilities were as follows:

	As of December 31,
	2022			2021
Deferred tax assets
Accrued bonus		222			-
Accrued vacation		47			38
Stock-based compensation		4,067			3,007
Capitalized R&D expenses		3,155			-
Intangible assets, net		315			382
Net operating loss carryforwards		11,522			11,511
Other		-			-
Valuation allowance		(19,327	)		(14,937	)
Deferred tax asset	$	1		$	1
Deferred tax liabilities
Fixed assets	$	(1	)	$	(1	)
Net deferred tax asset	$	-		$	-

Based on an assessment of all available evidence including, but not limited to the Company’s limited operating history in its core business and the Company's pre-revenue status, uncertainties of the commercial viability of its technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, the Company has concluded that it is more likely than not that these net operating loss carryforwards and other deferred tax assets will not be realized and, as a result, a full valuation allowance has been recorded against the Company’s deferred income tax assets. Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code Section 382. In general, an “ownership change,” as defined by Section 382, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Any limitation may result in expiration of all or a portion of the net operating loss carryforwards before utilization. Since the Company’s initial public offering, ownership changes have triggered a Section 382 limitation, which limits the ability to utilize net operating loss carryforwards.

The Company has incurred net operating losses from inception. At December 31, 2022, the Company had domestic federal net operating loss carryforwards of $99,047 and foreign net operating loss carryforwards of $1,514. In previous years, the Company completed public offerings, which triggered ownership changes under Section 382. The Company believes that as of December 31, 2022, the gross net operating loss carryforwards is limited to $52,700, which are available to reduce future taxable income. Federal net operating loss carryforwards generated through December 31, 2017 expire at various dates beginning 2029 through 2038, while federal net operating loss carryforwards generated during or after 2018 do not expire. Foreign net operating losses do not expire. The Company recorded a valuation allowance against all of its net deferred tax assets of $19,327 and $14,937 as of as of December 31, 2021, respectively, for a net increase of $4,390 from 2021 to 2022 and a net increase of $4,903 from 2020 to 2021.

Historically, Section 174 allowed taxpayers to deduct R&D expenses in the same year incurred and companies that engage in research-based activities relied on full expensing as a significant cost recovery mechanism. The Tax Cut and Jobs Act (TCJA) resulted in significant changes to the treatment of R&D expenses under Section 174. For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all R&D expenses paid or incurred during the year in the regular course of business. R&D expenses incurred in the U.S. during the year have been amortized over a five-year period and R&D expenses incurred in Australia during the year have been amortized over a fifteen-year period. All direct R&D expenses as classified on the Consolidated Statement of Operations have been capitalized and indirect R&D expenses included in G&A on the Consolidated Statement of Operations have been capitalized based on R&D compensation as a percent of total compensation other than legal patent expenses which have been fully capitalized.

The Company files income tax returns in the U.S. and Australia. The Company is subject to tax examinations for the 2016 tax year and beyond. The Company has no unrecognized tax positions and does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company has not incurred any interest or penalties related to unrecognized tax positions. In the event that the Company is assessed interest or penalties at some point in the future, they will be classified in the consolidated financial statements as general and administrative expense.