Note 11. Income Taxes
The income tax provision for the years ended December 31, 2025 and 2024 is summarized as follows:
| | | | | | | | | | | | | |
| Year Ended December 31, |
| 2025 | | 2024 | | |
| Current tax expense: | | | | | |
| Federal | $ | — | | | $ | — | | | |
| State | — | | | — | | | |
| Total current tax expense | $ | — | | | $ | — | | | |
| | | | | |
| Deferred tax (benefit) expense: | | | | | |
| Federal | $ | (11,725) | | | $ | (10,493) | | | |
| State | — | | | — | | | |
| Valuation allowance | 11,725 | | | 10,493 | | | |
| Total deferred tax expense | $ | — | | | $ | — | | | |
The components of deferred taxes at December 31, 2025 and 2024 are summarized as follows:
| | | | | | | | | | | |
| December 31, |
| 2025 | | 2024 |
| Deferred tax assets: | | | |
| Federal net operating loss carryforwards | $ | 93,958 | | | $ | 72,697 | |
| State net operating loss carryforwards | 491 | | | 491 | |
| Operating lease obligation | 918 | | | 1,426 | |
| Section 174 expenditures | 19,892 | | | 28,445 | |
| R&D tax credit | 4,714 | | | 4,714 | |
| Other | 1,780 | | | 1,676 | |
| Intangible assets, net | 4,748 | | | 5,159 | |
| | | |
| Total deferred tax assets | 126,501 | | | 114,608 | |
| Less: valuation allowance | (125,021) | | | (113,296) | |
| Deferred tax assets, net of valuation allowance | 1,480 | | | 1,312 | |
| | | |
| Deferred tax liabilities: | | | |
| Operating lease right of use asset, net | 728 | | | 1,140 | |
| | | |
| Property and equipment, net | 752 | | | 172 | |
| Total deferred tax liabilities | 1,480 | | | 1,312 | |
| | | |
| Net deferred tax assets | $ | — | | | $ | — | |
The reconciliation of taxes at the federal statutory rate to the Company’s provision for income taxes for the years ended December 31, 2025 and 2024 is summarized as follows:
| | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | |
| 2025 | | |
| U.S. statutory federal income tax rate | $ | (12,009) | | | 21 | % | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Changes in valuation allowances | 11,725 | | | (21) | % | | | | |
| Non-taxable or non-deductible items: | | | | | | | |
| Section 162(m) limitation | 615 | | | (1) | % | | | | |
| Other non-taxable or non-deductible items | (331) | | | 1 | % | | | | |
| | | | | | | |
| Effective tax rate | $ | — | | | — | % | | | | |
| | | | | | | |
| Year Ended December 31, | | |
| 2024 | | |
| Provision at statutory rate of 21% | $ | (10,930) | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Other | 437 | | | |
| | | |
| Changes in valuation allowances | 10,493 | | | |
| $ | — | | | |
In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences at December 31, 2025.
The Company had federal net operating loss carryforwards of $447.4 million and $346.2 million at December 31, 2025 and 2024, respectively. At December 31, 2025, $10.5 million of this amount will begin to expire in 2036 and the remaining $436.9
million has an indefinite carryforward period. The Company had state net operating loss carryforwards of $12.5 million and $12.5 million at December 31, 2025 and 2024, respectively, that will begin to expire beginning in 2036. The Company had federal and state R&D credits of $4.7 million that will begin to expire in 2037. The Company’s ability to utilize a portion of net operating loss carryforwards and credits to offset future taxable income, and tax, respectively, is subject to certain limitations under Section 382 of the Internal Revenue Code upon changes in equity ownership of the Company. Due to such limitation, $2.0 million of the Company’s net operating loss and less than $0.1 million of the Company’s R&D credits will expire unused, regardless of taxable income in future years.
The Company files a United States federal income tax return, as well as income tax returns in various states. The tax returns for years 2022 and thereafter remain open for examination. However, the taxing authorities have the ability to review the propriety of tax losses created in closed tax years to the extent such losses are utilized in an open tax year.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.