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

11. Income Taxes

 

Domestic and international pre-tax loss consists of the following:

 

   December 31, 
   2024   2023 
United States   (29,252,284)   (22,812,381)
International   -    1,150 
Loss before income taxes   (29,252,284)   (22,811,231)

 

For the years ended December 31, 2024 and 2023, income tax expense attributable to operations is immaterial.

 

Income tax expense differed from the amount computed by applying the federal statutory income tax rate of 21% to pretax income for the years ended December 31, 2024 and 2023 as a result of the following:

 

   December 31, 
   2024   2023 
Federal tax at statutory rate  $(6,142,980)  $(4,790,600)
State income taxes   (218,456)   (815,249)
Stock based compensation   180,319    276,371 
Foreign taxes   
-
    
-
 
Tax credits   (1,039,015)   (1,071,338)
Nondeductible items   26,970    (142,058)
Valuation allowance   5,327,801    5,517,860 
Deferred true up   1,165,581    1,320,182 
Rate change   717,809    (247,773)
Other items   (18,029)   (47,395)
Total  $
-
   $
-
 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of our deferred tax assets and liabilities as of December 31, 2024 and 2023 are as following:

 

   December 31, 
   2024   2023 
Deferred tax assets:            
Net operating loss carryforwards  $36,178,997   $32,935,845 
Research and development credits   7,006,591    5,938,775 
Intangibles   880,481    1,192,900 
Fixed assets   (181,103)   67,200 
Stock based compensation   452,339    410,323 
Accruals and reserves   281,367    146,482 
Deferred revenue   21,751    
-
 
Lease liability   69,025    245,790 
Capitalized research costs   5,280,797    3,905,973 
Other   8,639    6,876 
Gross deferred tax assets   49,998,884    44,850,164 
Valuation allowance   (49,934,084)   (44,606,284)
Total deferred tax assets   64,800    243,880 
Deferred tax liabilities:          
Right of use asset   (64,800)   (243,880)
Deferred project costs   
-
    
-
 
Total deferred tax liabilities   (64,800)   (243,880)
Net deferred tax assets  $
-
    
-
 

 

Management regularly assesses the ability to realize deferred tax assets recorded based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income on a jurisdiction by jurisdiction basis. In the event that the Company changes its determination as to the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. The Company’s management believes that, based on a number of factors, it is more likely than not, that all or some portion of the deferred tax assets will not be realized; and accordingly, for the year ended December 31, 2024, the Company has provided a valuation allowance against the Company’s U.S. net deferred tax assets. The net change in the valuation allowance for the years ended December 31, 2024 and 2023 was an increase of $5,327,800 and $5,517,861, respectively.

 

As of December 31, 2024, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $135,535,743 and $118,976,193, respectively, which will begin to expire in 2034 with $100,198,546 of our federal net operating loss carryforward lasting indefinitely.

 

As of December 31, 2024, the Company had federal and state research credit carryforwards of approximately $6,906,816 and $3,927,341, respectively. The federal research credit carryforwards will begin to expire in 2033 while the California research credits carry forward have an indefinite life.

 

The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use net operating losses may be limited as prescribed under Internal Revenue Code Section 382 (“IRC Section 382”). Events which may cause limitations in the amount of the net operating losses that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Utilization of the federal and state net operating losses may be subject to substantial annual limitation due to the ownership change limitations provided by the IRC Section 382 and similar state provisions.

 

Effective for tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures currently and requires taxpayers to amortize such costs over a period of five or fifteen years. While it is possible that Congress may modify, defer, or repeal such provision, we have no assurance that the provision will be modified, deferred or repealed. This legislation has accelerated the utilization of our net operating losses in the U.S., but it has not impacted our current tax obligations.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, and the Consolidated Appropriations Act, 2021 were passed into law and provide additional economic stimulus to address the impact of the COVID-19 pandemic, including among other items, several U.S. income tax provisions related to, among other things, net operating loss carrybacks, alternative minimum tax credits, modifications to interest expense limitations, and an option to defer payroll tax payments for a limited period. In 2023, we assessed our eligibility to claim a refund of employer taxes available under the Employee Retention Credit provisions of the CARES Act. For the year ended December 31, 2023, we calculated eligible credits of approximately $763,624 provided by the CARES Act, which have been recognized as offsets to salaries costs in operating expenses. As of December 31, 2024 and 2023, the aggregate eligible credit amount has been accrued as a receivable on our consolidated balance sheets.

 

The following table reflects changes in gross unrecognized tax benefits:

 

   December 31, 
   2024   2023 
Balance at beginning of year  $2,545,189   $2,086,044 
Increase in balance related to tax positions taken during the current year   445,293    459,145 
Increase in balance related to tax positions taken during prior years   12,343    
-
 
Decrease in balance related to prior year tax positions   
-
    
-
 
Decrease in balance related to settlement with tax authorities   
-
    
-
 
Balance at end of year  $3,002,825   $2,545,189 

 

As of December 31, 2024 and 2023, the total amount of gross unrecognized tax benefits was $3,002,825 and $2,545,189, respectively, which does not include any reserved interest or penalties. As of December 31, 2024, $3,002,825 of the total unrecognized tax benefits, if recognized, would have an impact on the Company's effective tax rate. The Company estimates that there will be no material changes in its uncertain tax positions in the next 12 months. The Company's has not recorded any interest or penalties related to its unrecognized tax benefits for 2024 or 2023.  

 

The Company files income tax returns in the U.S. federal and various state jurisdictions with varying statutes of limitations. The Company is generally no longer subject to tax examinations for years prior to 2021 for federal purposes and 2020 for state purposes, except in certain limited circumstances.

 

However, due to the fact that the Company had loss and credits carried forward in some jurisdictions, certain items attributable to technically closed years are still subject to adjustment by the relevant taxing authority through an adjustment to tax attributes carried forward to open years.