v3.25.4
Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Taxes  
Income Taxes

10. Income Taxes

 

For each of the years ended December 31, 2025 and 2024, the Company’s income tax expense was $0 and the effective tax rate was 0%.

 

The sources of income (loss) before income taxes are as follows for the years ended December 31, 2025 and 2024:

 

 

 

Year Ended December 31,

 

 

 

2025

 

 

2024

 

United States

 

$30,045,637

 

 

$(56,798,677)

International

 

 

(724,274)

 

 

(666,213)

Income (loss) before income taxes

 

$29,321,363

 

 

$(57,464,890)

 

The components of the provision for income taxes for the years ended December 31, 2025 and 2024 consisted of the following:

 

 

 

Years Ended December 31,

 

 

 

2025

 

 

2024

 

Current:

 

 

 

 

 

 

Federal

 

$-

 

 

$-

 

State

 

 

-

 

 

 

-

 

Total current provision

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Deferred:

 

 

 

 

 

 

 

 

Federal

 

 

-

 

 

 

-

 

State

 

 

-

 

 

 

-

 

Total deferred income taxes

 

 

-

 

 

 

-

 

Total provision for income taxes

 

$-

 

 

$-

 

 

Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures, as described in Note 2, the reconciliation of taxes at the federal statutory rate to the provision for income taxes for the year ended December 31, 2025 was as follows:

 

 

 

Years Ended December 31,

 

 

 

2025

 

 

 

Amount

 

 

Percentage

 

U. S. Federal Statutory Tax Rate

 

$6,157,486

 

 

 

21.0%

Change in valuation allowance

 

 

986,027

 

 

 

3.4%

Non-taxable and non-deductible items

 

 

 

 

 

 

 

 

Share-based payment awards

 

 

310,948

 

 

 

1.0%

Change in fair value of earnout shares liability

 

 

(3,234,368)

 

 

(11.0)%

Change in warrants liability

 

 

(4,379,049)

 

 

(14.9)%

Other

 

 

158,956

 

 

 

0.5%

Total

 

$-

 

 

 

0.0%

 

For the year ended December 31, 2025, the Company’s effective tax rate differs from the federal statutory rate principally due to non-taxable revaluation of fair value of earnout shares and warrants liabilities, change in valuation allowance and other permanent differences being excluded from the determination of taxable loss

 

As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differed from the statutory federal income tax rate as follows:

 

 

 

Years Ended December 31,

 

 

 

2024

 

 

2023

 

Federal statutory tax rate

 

 

21.0%

 

 

21.0%

Change in valuation allowance

 

 

(1)%

 

 

6.0%

Share-based compensation

 

 

0.0%

 

 

5.0%

Non-taxable change in fair value of earnout shares liability

 

 

(7)%

 

 

(29.0)%

Non-taxable change in fair value of warrants liability

 

 

(12)%

 

(3.0

)%

Other permanent differences

 

 

(1)%

 

 

0.0%

Effective tax rate

 

 

0.0%

 

 

0.0%

 

The components of net deferred tax assets as of December 31, 2025 and 2024 consisted of the following:

 

 

 

Years Ended December 31,

 

 

 

2025

 

 

2024

 

Deferred tax assets:

 

 

 

 

 

 

Tax credit carryforward

 

$1,286,195

 

 

$1,286,195

 

Deferred revenue

 

 

619,888

 

 

 

1,042,047

 

Capitalized research and development costs

 

 

835,820

 

 

 

1,147,053

 

Net operating loss carry-forward

 

 

2,374,090

 

 

 

691,481

 

Capital loss carry-forward

 

 

50,460

 

 

 

52,560

 

Operating lease liability

 

 

181,386

 

 

 

198,178

 

Property and equipment and other

 

 

-

 

 

 

2,999

 

 

 

 

5,347,839

 

 

 

4,420,513

 

Valuation allowance

 

 

(5,178,177)

 

 

(4,235,288)

Net deferred tax assets

 

$169,662

 

 

$185,225

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Right-of-use-assets

 

 

(169,662)

 

 

(185,225)

 

 

 

 

 

 

 

 

 

Total net deferred tax assets

 

$-

 

 

$-

 

 

As of December 31, 2025 and 2024, the Company has a federal net operating loss carryforward totaling approximately $11,305,000 and $2,939,000. The federal net operating loss carryforward generated from the years ended after December 31, 2017 may be carried forward indefinitely. As of December 31, 2025 and 2024, R&D tax credit carryforwards total approximately $1,513,000 each year and begin to expire in 2036. Realization of the carryforwards is dependent on the Company generating sufficient taxable income and may also be subject to usage limitations to the extent there are changes in the Company’s ownership.

 

Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with loss carry forwards not expiring unused and tax planning alternatives. In analyzing the need for valuation allowances, the Company first considered our history of cumulative operating results for income tax purposes over the past three years in each of the tax jurisdictions in which the Company operates, its financial performance in recent quarters, statutory carry forward periods and tax planning alternatives. In addition, the Company considered both its near-term and long-term financial outlook. After considering all available evidence (both positive and negative), the Company concluded that recognition of a valuation allowance for all of its deferred tax assets was required at December 31, 2025 and 2024. The valuation allowance increased by approximately $943,000 and $30,000 in 2025 and 2024, respectively. The increase during the current year is primarily related to net operating losses.

 

Pursuant to Sections 382 and 383 of the Internal Revenue Code, or IRC, annual use of the Company's net operating losses and tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The amount of annual limitation is determined based on the value of the Company immediately prior to the ownership changes.  The Company is in process of performing an assessment of whether a change in ownership has occurred or whether there have been multiple changes in ownership, within the meaning of Section 382. 

 

The Company evaluates uncertain tax positions using the “more likely than not” threshold (i.e., a likelihood of occurrence greater than fifty percent). The recognition threshold is met when an entity concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination by the relevant taxing authority. Those tax positions failing to qualify for initial recognition are classified as a gross unrecognized tax benefit until they meet the more likely than not standard or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. As of December 31, 2025 and 2024, the unrecognized tax benefit totals approximately $227,000 in each year.

 

The gross unrecognized tax benefits, if recognized, would not affect the effective tax rate as these unrecognized tax benefits would increase deferred tax assets that would be subject to a full valuation allowance. No material changes in the gross unrecognized tax benefits are expected over the next twelve months. Interest and penalties related to unrecognized tax benefits, if any, will be recognized as a component of income tax expense.

 

The Company did not have any cash paid amount for income taxes, net of refunds for the year ended December 31, 2025.

 

The Company is subject to possible tax examination for the years 2014 through 2025.The Company is also subject to examination with respect to federal net operating loss carryforwards generated and carried forward from those years. There are currently no federal or state income tax audits in process.