AEye, Inc. Income Taxes Disclosure

19.	INCOME TAXES

 

For the years ended December 31, 2025 and 2024, the Company had a loss before income tax of $(33,947) and $(35,462), respectively, primarily from continuing operations in the United States.  

 

For the years ended December 31, 2025 and 2024, the Company recognized a provision (benefit) for income taxes of $11 and $(2), respectively. The provision for the year ended December 31, 2025 was comprised of $2 and $9 in state and foreign taxes, respectively. The benefit for the year ended December 31, 2024 was comprised of $2 and $(4) in state and foreign taxes, respectively.

 

The Company has elected to prospectively adopt the guidance in ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. The following table presents a reconciliation of the federal statutory rate of 21% to the Company's effective tax rate:

 

		Year ended December 31, 2025
		Amount (in thousands)				Percentage
Federal income tax at statutory rate		$	(7,129	)			21.0	%
Domestic federal
Tax credits			(466	)			1.4	%
Stock-based compensation			933				(2.7	)%
Stock and debt issuance costs			495				(1.5	)%
Change in valuation allowance, net			5,828				(17.2	)%
Other			350				(1.0	)%
Domestic state taxes, net of federal effect			2				0.0	%
Foreign tax effects			(2	)			0.0	%
Total		$	11				0.0	%

 

As previously disclosed for the year ended December 31, 2024, prior to the adoption of ASU 2023-09, the following table is a reconciliation of the difference between the effective income tax rate and the federal statutory tax rate of 21%:

 

		Year Ended December 31,
		2024
Federal income tax at statutory rate			21.0	%
Non deductible expenses and other			(0.8	)%
Share-based compensation			(6.7	)%
Research and development credits			2.2	%
Change in valuation allowance, net			(15.7	)%
Effective tax rate			0.0	%

 

For 2025 and 2024, the Company's effective tax rate differs from the amount computed by applying the statutory federal and state income tax rates to net loss before income tax, primarily as the result of state income taxes, R&D credits and changes in the Company's valuation allowance.

 

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2025 and 2024 are presented below (in thousands):

 

		As of December 31,
		2025				2024
Deferred tax assets:
Net operating loss carryforwards		$	94,475			$	76,199
Research and development credit carryforward			10,492				9,733
Stock-based compensation			57				201
Property and equipment			949				1,020
Operating lease liabilities			141				1,133
R&D Expenses			1,959				12,240
Other accruals			1,595				1,610
Gross deferred tax assets			109,668				102,136
Valuation allowance			(109,546	)			(101,954	)
Deferred tax assets net of valuation allowance			122				182
Deferred tax liabilities:
Right-of-use assets			(122	)			(182	)
Gross deferred tax liabilities			(122	)			(182	)
Total deferred tax assets (liabilities), net		$	—			$	—

 

The Company reports income taxes in accordance with ASC 740, which requires an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the enacted tax rates expected to be in effect when the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance reduces the deferred tax assets to the amount that is more likely than not to be realized.

 

Realization of deferred tax assets is dependent on future taxable earnings, if any, the timing and amount of which are uncertain. The Company has a history of operating losses and has incurred cumulative book losses since its formation. Based upon the history of losses, the Company has determined that it is more likely than not that the net deferred tax assets will not be realized, and accordingly, a full valuation allowance has been recorded against its net deferred tax assets. The valuation allowance as of December 31, 2025 was $109,546 which increased from $101,954 at December 31, 2024. The increase in the valuation allowance is primarily related to additional deferred tax assets recorded for net operating losses and research credits generated during the year ended December 31, 2025.

 

As of December 31, 2025, the Company had $362,183 and $268,734 of federal and state net operating losses available to reduce future taxable income, respectively, of which $12,256 will begin to expire in 2033 for federal tax purposes and $268,734 will begin to expire in 2029 for state tax purposes. Approximately $349,927 of federal net operating loss included above can be carried forward indefinitely.

 

As of December 31, 2024, the Company had $284,368 and $241,652 of federal and state net operating losses available to reduce future taxable income, which will begin to expire in 2033 for federal and 2029 for state tax purposes.

 

The Company also has federal and state research and development tax credit carryforwards of $8,824 and $6,749 as of December 31, 2025 and $8,203 and $6,255 as of December 31, 2024. The federal credits begin to expire in 2034 and the state credits have no expiration date.

 

Under Section 382 of the Internal Revenue Code of 1986, as amended, the Company’s ability to utilize NOL or other tax attributes, such as research tax credits, in any taxable year, may be limited if the Company has experienced an “ownership change.” Generally, a Section 382 ownership change occurs if there is a cumulative increase of more than 50 percentage points in the stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock within a specific testing period. Similar rules may apply under state tax laws. Based on the Section 382 analysis performed through December 31, 2021, the Company concluded all of its NOLs and credits would be available to use as of December 31, 2021, however, future changes in ownership may limit the ability to use tax attributes under Section 382.

 

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):

 

		Year ended December 31,
		2025				2024
Unrecognized tax benefits as of the beginning of the year		$	3,740			$	3,480
Decrease related to prior year tax provisions			(5	)			(5	)
Increase related to current year tax provisions			284				265
Unrecognized tax benefits as of the end of the year		$	4,019			$	3,740

 

The Company recognizes interest and penalties related to income tax matters as a component of income tax expense. As of December 31, 2025 and December 31, 2024 there was no accrued interest nor penalties related to uncertain tax positions.

 

The Company files income tax returns in the U.S., various state jurisdictions, and foreign jurisdictions. The U.S., state and foreign jurisdictions have statutes of limitations that generally range from three to five years. Due to the Company’s net losses, substantially all of its federal, state and local income tax returns are subject to examination for federal and state purposes since inception. The Company is not currently under examination for federal or state income tax purposes.

 

In accordance with the requirements of ASU 2023-09 for the year ended December 31, 2025, cash paid for income taxes totaled was $58 and was comprised of state income taxes of $2 made primarily to California, and $9 and $47 for foreign taxes paid in Korea and Germany, respectively. 

 

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted. This legislation introduces several provisions impacting corporate taxes including (i) the permanent extension of certain expiring or expired elements of the Tax Cuts and Jobs Act such as 100% bonus depreciation and favorable modifications related to deductibility of interest, and (ii) expensing of research and experimental expenses. The OBBBA contains multiple effective dates, with some provisions applicable beginning in 2025. Because of the Company's valuation allowance on its net deferred tax assets, the change did not have a material impact on its financial statements.