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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

11. Income Taxes

The effective tax rate if the Company’s provision (benefit) for income taxes differs from the federal statutory rate as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2024

 

 

2023

 

Tax computed at federal statutory rate

 

$

(2,877

)

 

$

(7,214

)

State tax, net of federal tax benefit

 

 

611

 

 

 

1

 

Permanent differences

 

 

(166

)

 

 

50

 

Warrant liability

 

 

(1,993

)

 

 

(665

)

Research and development tax credits, net of uncertain positions

 

 

(1,050

)

 

 

(705

)

Valuation allowance

 

 

5,475

 

 

 

8,534

 

Income tax expense

 

$

—

 

 

$

1

 

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards. Significant components of deferred tax assets (liabilities) are as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2024

 

 

2023

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$

62,407

 

 

$

58,535

 

Intangible assets

 

 

10,356

 

 

 

9,865

 

Tax credit carry forwards

 

 

13,506

 

 

 

12,403

 

Stock compensation

 

 

2,026

 

 

 

1,700

 

Accrued compensation

 

 

180

 

 

 

93

 

Total deferred tax assets

 

 

88,475

 

 

 

82,596

 

Deferred tax liabilities

 

 

 

 

 

 

Fixed assets

 

 

(15

)

 

 

(21

)

Total deferred tax liabilities

 

 

(15

)

 

 

(21

)

Total net deferred tax assets

 

 

88,460

 

 

 

82,575

 

Less: valuation allowance

 

 

(88,460

)

 

 

(82,575

)

Net deferred taxes

 

$

—

 

 

$

—

 

The Company provided a full valuation allowance on the net deferred tax asset because management has determined that it is more-likely-than-not that the Company will not earn income sufficient to realize the deferred tax assets during the carryforward period. As of December 31, 2024, the Company has federal and state NOLs available of approximately $296.9 million and nil, respectively, to offset future taxable income, if any, for federal and state income tax purposes. The federal and state NOLs expire beginning in 2026. The Company has $194.7 million of post-2017 federal NOL carryforwards that carry forward indefinitely. In addition, under the Tax Act the amount of net operating losses generated in taxable periods beginning after December 31, 2017, that the Company is permitted to deduct in any taxable year is limited to 80% of taxable income in such year, where taxable income is determined without regard to the net operating loss deduction itself. The Tax Act generally eliminates the ability to carry back any net operating loss to prior taxable years, while allowing post-2017 unused net operating losses to be carried forward indefinitely.

As of December 31, 2024, the Company has federal and state research and development credit carryforwards available of approximately $13.3 million and $3.1 million, respectively. Federal research and development carryforwards expire beginning in 2027. State research and development carryforwards do not expire.

Pursuant to Internal Revenue Code of 1986, as amended (the “Code”) specifically by IRC §382, the Company’s ability to use net operating loss carryforwards to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more than 50% within a three-year testing period. The Company has not completed an ownership change analysis pursuant to IRC Section 382. If ownership changes within the meaning of IRC Section 382 are identified as having occurred, the amount of remaining tax attribute carryforwards available to offset future taxable income and income tax expense in future years may be significantly reduced. Any limitation may result in the expiration of a portion of the NOL carryforwards before utilization.

The change in the Company’s unrecognized tax benefits is summarized as follows (in thousands):

 

 

 

 

Balance at December 31, 2022

 

$

7,506

 

Increase related to current year tax positions

 

 

2,846

 

Additions for tax positions of prior years

 

 

21

 

Additions in connection with the reverse merger

 

 

847

 

Reduction for tax positions of prior years

 

 

(140

)

Balance at December 31, 2023

 

$

11,080

 

Increase related to current year tax positions

 

 

334

 

Additions for tax positions of prior years

 

 

68

 

Balance at December 31, 2024

 

$

11,482

 

The Company accounts for uncertainty in income taxes in accordance with ASC 740 Income Taxes. Tax positions are evaluated in a two-step process, whereby the Company first determines whether it is more likely than not that a tax position will be sustained upon examination by the tax authority, including resolutions of any related appeals or litigation processes, based on technical merit. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more likely than not recognition threshold to be recognized. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest and penalties and has not recognized interest and/ or penalties in the statements of operations and comprehensive loss for the years ended December 31, 2024 and 2023. Uncertain tax positions are evaluated based upon the facts and circumstances that exist at each reporting period. Subsequent changes in judgment based upon new information may lead to changes in recognition, derecognition,

and measurement. Adjustments may result, for example, upon resolution of an issue with the taxing authorities or expiration of a statute of limitations barring an assessment for an issue.

As of December 31, 2024, and 2023, unrecognized tax benefits associated with uncertain tax positions was approximately $11.8 million and $9.1 million respectively. If recognized, this would affect the effective tax rate, subject to valuation allowance. As of December 31, 2024, the Company did not recognize any interest and penalties associated with unrecognized tax benefits. Due to net operating losses incurred, tax years from inception remain open to examination by the Federal and State taxing jurisdictions to which we are subject. The Company is not currently under Internal Revenue Services (IRS), state or local tax examination.