Note 15 – Income Taxes

For the years ended December 31, 2023 and December 31, 2022, the Company did not record a provision for income taxes due to the recognition of a full valuation allowance. 

The Company recognizes federal, and state deferred tax assets or liabilities based on the Company’s estimate of future tax effects attributable to temporary differences and carryovers. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. The Company considers projected future taxable income and planning strategies in making this assessment. As of December 31, 2023, as a result of a three-year cumulative loss and lack of sufficient positive evidence, we concluded that a full valuation allowance was necessary to offset our deferred tax assets. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. The Company will continue to evaluate its deferred tax balances to determine any assets that are more likely than not to be realized. During the year ended December 31, 2023, the valuation allowance increased by $6.4 million, primarily due to the increase in net operating loss carryforwards. 

At December 31, 2023 and December 31, 2022, the tax effects of the temporary differences and carryovers that give rise to deferred tax assets consisted of the following (in thousands):

As of December 31, 2023, the Company has net operating loss carryforwards of approximately $58.9 million and $44.3 million available to reduce future taxable income, if any, for Federal and State income tax purposes, respectively. Approximately $26 thousand of Federal net operating losses can be carried forward to future years and expire in 2037. The Federal net operating loss generated during the years ended after December 31, 2017, of approximately $58.8 million can be carried forward indefinitely but is limited to offsetting only 80% of taxable income each year.

The utilization of our net operating loss carryforwards and research tax credit carryovers could be subject to annual limitations under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state tax provisions, due to ownership change limitations that may have occurred previously or that could occur in the future. These ownership changes limit the amount of net operating loss carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percent points over a three-year period. The Company has not conducted an analysis of an ownership change under section 382. To the extent that a study is completed, and an ownership change is deemed to occur, the Company’s net operating losses and tax credits could be limited.

A reconciliation of the statutory income tax rates and the Company’s effective tax rate for the years ended December 31, 2023 and December 31, 2022 are as follows: 

On December 31, 2023, and December 31, 2022, the Company did not have any significant uncertain tax positions. The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2023, and December 31, 2022, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months.

The Company’s tax years from 2020 remain open for examination by the Federal and state taxing authorities. In addition, to the extent that the Company’s tax attributes are utilized in future years to offset income or income taxes, those years which generated the tax attributes are open since the Company’s inception. The Company is not aware of any examinations that are currently taking place by taxing authorities.