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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Taxes  
Income Taxes

Note 7. Income Taxes

 

The Company’s ability to utilize its net operating loss (NOL) carryforwards may be substantially limited due to ownership changes that have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state provisions. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain stockholders or public groups.

 

During the course of preparing the Company’s consolidated financial statements, as of and for the year ended December 31, 2024, the Company completed a preliminary assessment of the available NOL carryforwards under Section 382 of the Code. The Company determined that it likely had undergone multiple ownership changes from 2009 to 2024 as defined under Section 382. As a result of these identified ownership changes, the portion of NOL carryforwards attributable to the pre-ownership change periods are subject to a substantial annual limitation under Section 382 of the Code. A conclusive Section 382 study had not been performed for December 31, 2024 due to the Company’s current projections of the lack of taxable income for the foreseeable future. NOLs created in years beginning after 2017 now only offset 80% of taxable income but no longer have a 20-year expiration.

 

The 2024 and 2023 annual effective tax rate was estimated to be 25% for the combined U.S. federal and state statutory tax rates. The Company reviews tax uncertainties in light of changing facts and circumstances and adjusts them accordingly.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting, and the amounts recognized for income tax purposes. The significant components of deferred tax assets (at an approximate 25% total effective tax rate, consisting of a 21% effective tax rate for Federal and a 4% effective tax rate for the state) as of December 31, 2024 and 2023, respectively, are as follows.

 

 

 

December 31,

2024

 

 

December 31,

2023

 

Book income at federal statutory rate, 21%

 

 

21.00%

 

 

21.00%

State taxes, net of federal benefit

 

 

0.81%

 

 

4.25%

Change in valuation allowance

 

 

(6.58 )%

 

 

(25.40 )%

Permanent difference

 

 

(0.07 )%

 

 

(0.15 )%

True-Ups, Stock-based compensation and Other

 

 

(15.16 )%

 

 

0.30%

 

 

 

—

%

 

 

—

%

 

Deferred tax assets consisted of the following (rounded in millions):

 

 

 

December 31,

2024

 

 

December 31,

2023

 

Stock-based compensation

 

$1.5

 

 

$3.7

 

Patent impairment provision

 

 

0.3

 

 

 

0.3

 

Net operating loss carry-forwards

 

 

17.0

 

 

 

15.0

 

Research and development expenses – capitalized for tax purposes

 

 

1.4

 

 

 

0.5

 

Research and development tax credits

 

 

0.3

 

 

 

0.3

 

Total deferred tax asset

 

 

20.5

 

 

 

19.8

 

Less: valuation allowance

 

 

(20.5 )

 

 

(19.8 )

Net deferred tax asset

 

$—

 

 

$—

 

 

The Company has NOL carryforwards for federal and state tax purposes of approximately $71.8 million at December 31, 2024 and $60 million at December 31, 2023, that is potentially available to offset future taxable income. There were no deferred tax liabilities at December 31, 2024 and 2023. As of December 31, 2024 and 2023, the Company had federal research and development credit carry-forwards of approximately $0.3 million. The federal research and development credit carry-forwards have a 20-year carry-forward period and expire from 2036 to 2040. The Company’s NOL carryforwards included the NOL from 2018 (post-2017) to current reporting year and all have an unlimited carryforward period. For financial reporting purposes, no deferred tax asset was recognized because as of December 31, 2024 and 2023, management currently estimates that it is more likely than not that substantially all the deferred tax assets, the majority of which are NOLs, will be unused. The increase in the total valuation allowance for the years ended December 31, 2024 and 2023 was approximately $0.7 million and $2.0 million, respectively. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the years in which those temporary differences are deductible. Any unused annual limitation may be carried over to later years, and the amount of the limitation may under certain circumstances be increased by the built-in gains in assets held by us at the time of the change that are recognized in the five-year period after the change.

 

The reconciliation between income taxes (benefit) at the U.S. and State statutory combined tax rates of approximately 25% and the amount recorded in the accompanying consolidated financial statements is as follows (rounded in millions):

 

 

 

December 31,

2024

 

 

December 31,

 2023

 

Tax benefit at U.S. federal statutory rates

 

$(0.6 )

 

$(1.7 )

Tax benefit at state statutory rates

 

 

(0.1 )

 

 

(0.3 )

Other

 

 

—

 

 

 

—

 

Increase in valuation allowance

 

 

0.7

 

 

 

2.0

 

Total provision for income tax benefit

 

$—

 

 

$—

 

 

Uncertain Tax Positions

 

We file income tax returns in the U.S. federal jurisdiction and State of Idaho, New York and Virginia. The tax years 2021 through 2023 remain subject to examination by the appropriate governmental agencies. At December 31, 2024 and 2023, the Company had no unrecognized tax benefits. As of December 31, 2024 and 2023, there were no tax contingencies or unrecognized tax positions recorded. As of December 31, 2024 and 2023, we did not accrue interest and penalties.