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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2025
INCOME TAXES |
Income Taxes | NOTE 7—INCOME TAXES The Company has not recorded any income tax expense (benefit) for the period ended December 31, 2025 due to its history of net operating losses. The Company has adopted ASU 2023-09 “Income Taxes (Topic 740) Improvements to Income Tax Disclosures for the year-ended December 31, 2025. The amounts of cash income taxes paid (received) by the Company for both federal and state income tax for the years ended December 31, 2025 and December 31, 2024 was zero. The reconciliation of income tax expenses (benefit) at the statutory federal income tax rate of 21% for the period ended December 31, 2024 is as follows (in thousands):
|  | December 31, |
|  | 2024 |
U.S. federal tax benefit at statutory rate |  | $ | (3,696 | )
State income tax benefit, net of federal benefit |  |  | (94 | )
Stock compensation |  |  | 256 |
Other nondeductible, including IPR&D expense |  |  | 1 |
Change in state tax rate |  |  | - |
Expiration of NOL Carryforward |  |  | 564 |
Net operating loss adjustments |  |  | - |
Other, including effect of tax rate brackets |  |  | (54 | )
Change in valuation allowance |  |  | 3,023 |
|  | $ | - |
The reasons for the difference between actual income tax benefit for the years ended December 31, 2025 and the amount computed by applying the statutory federal income tax rate to losses before income tax benefit after the adoption of ASU 2023-09 are as follows (in thousands):
|  | Year Ended December 31, 2025 |  |
|  | Amount |  |  | % of Pre-Tax Loss |  |
U.S. federal statutory tax rate |  | $ | (11,045 | ) |  | 21.0% |  |
State and local income taxes, net of federal income tax |  |  | (51 | ) |  |  | 0.1 | % |
Effect of changes in tax laws or rates enacted in the current period |  |  | - |  |  |  | - |  |
Tax credits |  |  | - |  |  |  | - |  |
Change in valuation allowance |  |  | 8,682 |  |  | (16.51%) |  |
Nontaxable or nondeductible items |  |  |  |  |  |  |
Incentive stock option expense |  |  | 167 |  |  | (0.32%) |  |
Sec. 162(m) impact on stock compensation |  |  | 2,775 |  |  | (5.27%) |  |
Changes in Unrecognized Tax Benefits |  |  | - |  |  |  | - |  |
Other adjustments |  |  |  |  |  |  |
Provision to return |  |  | - |  |  |  | - |  |
Other |  |  | (528 | ) |  | 1.0% |  |
Effective tax Rate |  | $ | - |  |  | 0.0% |  |
The tax effects of temporary differences and carry forwards that give rise to significant portions of the deferred tax assets are as follows (in thousands):
|  | December 31, |
Deferred Tax Assets |  | 2025 |  |  | 2024 |
Net operating loss carryforwards |  | $ | 45,621 |  |  | $ | 37,639 |
Accruals and other |  |  | 81 |  |  |  | 329 |
Capitalized R&D |  |  | 3,315 |  |  |  | 3,732 |
Capital loss carryforwards |  |  | - |  |  |  | 1 |
Stock compensation |  |  | 1,366 |  |  |  | - |
Valuation allowance |  |  | (50,383 | ) |  |  | (41,701 | )
Net deferred tax assets |  |  | - |  |  |  | - |
Deferred Tax Liabilities |  |  |  |  |  |
Other liabilities |  |  | - |  |  |  | - |
Net Deferred Tax Liabilities |  | $ | - |  |  | $ | - |
The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized. The Company periodically evaluates the recoverability of the deferred tax assets. At such time that it is determined that it is more likely than not that deferred tax assets will be realizable, the valuation allowance will be reduced. The net increase in the valuation allowance during 2025 was approximately $8.7 million. As of December 31, 2025, the Company had federal and state net operating loss carryforwards of approximately $208.5 million and $172.4 million available to offset future federal and state taxable income, respectively. Federal net operating losses of $120.7 million begin to expire in 2026, while the remaining $87.8 million carryforward indefinitely. State net operating losses begin to expire in 2026. The Company’s only material state income tax activity for the years 2025 and 2024 is related to the North Carolina jurisdiction. Utilization of the net operating loss carryforwards may be subject to an annual limitation due to the ownership percentage change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of the net operating losses before utilization or substantial restrictions on the use of such net operating losses. On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act (OBBBA), which includes several changes to U.S. federal income tax law, including temporary and permanent extension, of expiring provisions of the Tax Cuts and Jobs Act of 2017. Significant provisions for corporate taxpayers include permanent 100% bonus depreciation for qualified property, immediate expensing of domestic R&D expenditures, and changes to the limitation on business interest expense deductions under Section 163(j). None of these provisions have a material impact on the Company’s 2025 income tax provision. The main provision impacting the Company’s tax profile is the allowance for current expensing of domestic R&D expenditures. We have U.S. federal net operating loss carryforwards, or NOLs, which expire in various years if not utilized. Under Sections 382 and 383 of Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes, such as research tax credits, to offset its future post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We have not performed a formal study to determine whether any of our NOLs are subject to these limitations. We have recorded deferred tax assets for our NOLs and research and development credits and have recorded a full valuation allowance against these deferred tax assets. In the event that it is determined that we have in the past experienced additional ownership changes, or if we experience one or more ownership changes as a result of future transactions in our stock, then we may be further limited in our ability to use our NOLs and other tax assets to reduce taxes owed on the net taxable income that we earn in the event that we attain profitability. Any such limitations on the ability to use our NOLs and other tax assets could adversely impact our business, financial condition, and operating results in the event that we attain profitability. The Company follows the provisions of ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This topic also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. There were no uncertain tax positions as of December 31, 2025 and 2024. The Company files U.S. and state income tax returns with varying statutes of limitations. The tax years 2005 and forward remain open to examination due to the carryover of unused net operating losses or tax credits.

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