Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

The provision for income taxes for the years ended December 31, 2023 and 2022 are as follows, in thousands:

	Years Ended December 31,
	2023			2022
Current
Federal	$	–		$	–
State		–			–
Total current		–			–
Deferred
Federal		(1,831	)		(1,733	)
State		(718	)		(553	)
Total deferred		(2,549	)		(2,286	)
Valuation allowance		2,549			2,286
Total provision for income taxes	$	–		$	–

The following table presents a reconciliation of the U.S. statutory tax rate to the Company’s actual effective income tax rate:

	Years Ended December 31,
	2023		2022
Federal statutory rate		21.0%		21.0%
State income taxes, net of federal benefit		5.9		7.4
Non-deductible expenses		(0.5)		(0.8)
Income tax credits		2.1		3.2
Valuation allowance		(28.5)		(30.8)
Effective tax rate		0.0%		0.0%

The Company recognizes deferred tax assets and liabilities to reflect the tax effects of temporary differences between the tax basis of assets or liabilities and their reported amounts in the consolidated financial statements in accordance with ASC 740. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled.

ASC 740 requires that a valuation allowance be established when management determines that it is more likely than not that all or a portion of a deferred asset will not be realized. The Company evaluates the realizability of its net deferred income tax assets and valuation allowances as necessary, at least on an annual basis. During this evaluation, the Company reviews its forecasts of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred income tax assets to determine if a valuation allowance is required. As a result of this evaluation, the Company has recorded a full valuation allowance against its deferred tax assets as the Company believes it is more likely than not that the benefit of all of its deferred tax assets will not be realized.

The significant components of the Company’s deferred tax assets and liabilities are as follows, in thousands:

	Years Ending December 31,
	2023			2022
Deferred tax assets:
Net operating loss carryforwards	$	774		$	11,808
Tax credit carryforwards		295			1,227
Stock-based compensation		80			435
Capitalized research and development expenses		1,384			1,662
License fees		3			1,680
Lease liability		9			46
Other timing differences		13			120
Deferred tax assets		2,558			16,978
Deferred tax liabilities:
Right of use asset		(9	)		(43	)
Deferred tax liability		(9	)		(43	)
Valuation allowance		(2,549	)		(16,935	)
Net deferred tax asset	$	–		$	–

Ownership changes may limit the amount of net operating loss (“NOL”) carryforwards or tax credit carryforwards that can be utilized to offset future taxable income or tax liability. Pursuant to Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), NOL and tax credit carryforwards may be subject to annual limitations in the event a cumulative change in ownership of more than 50% occurs within a three-year period. Any limitation may result in expiration of a portion of the NOL carryforwards or tax credit carryforwards before utilization.

During 2023, the Company completed an assessment of the available NOL and tax credit carryforwards under Sections 382 and 383 of the Code since the last assessment completed in 2021 and concluded that the Company underwent an ownership change in 2023. As a result, NOL and tax credit carryforwards attributable to the pre-ownership change are subject to substantial annual limitations under Sections 382 and 383 of the Code. The Company adjusted its NOL and tax credit carryforwards to address the impact of the ownership change. For the year ended December 31, 2023, federal and state NOLs were reduced by $52,400,000 and $25,900,000, respectively, and federal and state research and development tax credit carryforwards were reduced by $918,000 and $517,000, respectively, as a result of the ownership change in 2023. The Company may experience ownership changes in the future as a result of subsequent shifts in stock ownership, some of which may be outside of the Company’s control.

At December 31, 2023, the Company had federal and state NOL carryforwards of approximately $2,900,000 and $2,475,000, respectively, to reduce future taxable income. The utilization of the federal carryforwards as an available offset to future taxable income is subject to limitations under federal income tax laws. Under current federal income tax law, federal NOLs generated in tax years beginning after 2017 may be carried forward indefinitely, but are limited to offset up to 80% of future taxable income. As of December 31, 2023, all of our federal NOL carryforwards will carryforward indefinitely. The Company’s available state NOL carryforwards will begin to expire in 2044, unless previously utilized.

At December 31, 2023, the Company also had federal and state research and development credits of approximately $227,000 and $87,000, respectively. The federal tax credit carryforwards will begin to expire in 2044 and the state tax credit carryforwards will begin to expire in 2039.

The Company has not recorded any uncertain tax positions as of December 31, 2023 or 2022. The Company 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. 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 expenses.

The Company files income tax returns in the United States and in multiple state jurisdictions. The Company is subject to tax examinations for federal and state purposes for tax years 2015 through 2023.