NOTE 7 - INCOME TAXES

The Company accounts for income taxes under ASC 740 - “Income Taxes” (“ASC 740”), which requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry-forwards. ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets.

Income tax expense (benefit) attributable to income from continuing operations was $21,838 thousand and $22,576 thousand for the years ended December 31, 2022 and 2021, respectively, and differed from the amounts computed by applying the U.S. federal income tax rate of 21%% to pretax income from continuing operations as a result of the following:

 SCHEDULE OF PRETAX INCOME FROM CONTINUING OPERATIONS

The components of the provision for income taxes are as follows:

 SCHEDULE OF PROVISION FOR INCOME TAXES

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2022 and 2021 are presented below:

 SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES

The valuation allowance for deferred tax assets as of December 31, 2022 and 2021 was $130,527 thousand and nil, respectively. The net change in the total valuation allowance was an increase of $130,527 thousand in the year ended December 31, 2022.

At year ended December 31, 2022, the Company concluded, based upon all available evidence, it was more likely than not that it would not have sufficient future taxable income to realize the Company’s federal and state deferred tax assets. As a result, the Company established a valuation allowance against deferred tax assets that are not supported by reversing deferred tax liabilities.

At December 31, 2022, the Company has net operating loss carryforwards for federal income tax purposes of $217,503 thousand, which are available to offset future taxable income. The Company has net operating loss carryforwards for state income tax purposes of $46,983 thousand which are available to offset future state taxable income. The Company has interest carryforward in the amount of $10,076 thousand which has no expiration.

Section 382 and Section 383 of the Internal Revenue Code limit the utilization of U.S. tax attribute carryforwards following a change of control. Based on the Company’s analysis under Section 382, approximately $86,000 thousand of tax attributes is limited by Section 382/383 as of December 31, 2022. The Section 382/383 limitation in conjunction with the twenty-year carryforward limitation caused $33,500 thousand of attributes to be deemed worthless, which resulted in a write-off of the related deferred tax assets in 2021.

In addition, the Company has the following attributes and credit carryforwards:

 SCHEDULE OF ATTRIBUTES AND CREDIT CARRYFORWARDS

A reconciliation of the beginning and ending amount of total unrecognized tax benefits for the tax years ended December 31, 2022, and 2021 is as follows:

 SCHEDULE OF UNRECOGNIZED TAX BENEFITS ROLL FORWARD

The Company has established a reserve against its federal R&D tax credits generated in 2022 and previous years. The Company has also established a reserve related to its executive compensation deduction limitation in 2022.

In addition, the Company has the following attributes and credit carryforwards:

 SCHEDULE OF NET OPERATING LOSS CARRYFORWARDS 

As of December 31, 2022, the total amount of unrecognized tax benefits was $5,252 thousand, all of which was offset against deferred tax assets. If the unrecognized tax benefits were recognized as of December 31, 2022, there would be a $5,252 thousand favorable impact that would affect the effective rate on income from continuing operations. The Company also accrues for interest and penalties on its uncertain tax positions and includes such charges in its income tax provision in the Consolidated Statements of Other Comprehensive Income (Loss). Interest and penalty expense amounted to nil and nil, respectively, in 2022 and 2021.

Total accrued interest and penalties were nil and nil, respectively, in 2022. The Company does not currently expect any of its remaining unrecognized tax benefits to be recognized in the next twelve months.

The Company files federal and state income tax returns. The 2018-2021 tax years generally remain subject to examination by the IRS and various state taxing authorities, although the Company is not currently under examination in any jurisdiction.