Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

12. Income Taxes

For the years ended December 31, 2022 and 2021, the Company’s provision for income taxes consisted of zero state income tax expense. A reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate is as follows (in thousands):

	Year Ended December 31,
	2022			2021
Tax at federal statutory rate	$	(3,701	)	$	(3,657	)
State taxes, net of federal benefit		(916	)		(711	)
Permanent differences		(484	)		(445	)
Change in valuation allowance		5,084			5,104
Research credits		(273	)		(286	)
Nondeductible interest expense		290			—
Other		—			(5	)
Provision for taxes	$	—		$	—

Significant components of the Company’s net deferred tax assets as of December 31, 2022 and 2021 consist of the following (in thousands):

	As of December 31,
	2022			2021
Deferred tax assets:
Federal, state and foreign net operating losses	$	85,547		$	83,211
Research and other credits		5,343			4,892
Operating lease liability		544			752
Fixed assets		471			—
Accruals and other		3,628			2,845
Capitalized research and development		1,019			—
Total deferred tax assets		96,552			91,700
Less: Valuation allowance		(95,992	)		(90,908	)
Total net deferred tax assets		560			792
Deferred liabilities:
Property and equipment		—			(2	)
Operating lease right of use asset		(560	)		(790	)
Total deferred tax liabilities		(560	)		(792	)
Net deferred tax assets (liabilities)	$	—		$	—

The valuation allowance increased by $5.1 million and $4.7 million during the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, the Company had approximately $344.3 million of federal and $208.0 million of state net operating loss carryforwards available to offset future taxable income. If not utilized, the federal and state net operating loss carryforwards begin to expire in 2027 and 2023, respectively. Out of the Federal net operating loss carryforwards, $86.8 million were generated post December 31, 2017 and have no expiration.

As of December 31, 2022, the Company also had approximately $4.3 million and $4.2 million of research and development tax credit carryforwards available to reduce future taxable income, if any, for both federal and California purposes, respectively. The federal credit carryforwards expire beginning in 2027, and the California research credits do not expire and may be carried forward indefinitely.

The Company's ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax laws. In the event the Company should experience an ownership change, as defined, utilization of the Company's net operating loss carryforwards and tax credits could be limited.

The Company evaluates tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information.

A reconciliation of the beginning and ending amount of the gross recognized tax benefit is as follows (in thousands):

	As of December 31,
	2022		2021
Balance at beginning of year	$	2,366	$	2,307
Increase based on the tax positions in the current year		203		228
Increase (Decrease) for tax positions of prior year		12		(169	)
Balance at end of year	$	2,581	$	2,366

As of December 31, 2022, all unrecognized tax benefits would be subject to a full valuation allowance, if recognized, and would not affect the Company’s tax rate.

The Company does not anticipate that the total amounts of unrecognized tax benefits will significantly increase or decrease in the next twelve months.

The Company's policy is to include interest and penalties related to unrecognized tax benefits within its provision for income taxes. Due to the Company's net operating loss position, the Company has not recorded an accrual for interest or penalties related to uncertain tax positions for the years ended December 31, 2022 or 2021.