Lipocine Inc. Income Taxes Disclosure
| (7) | Income Taxes |
| (a) | Income Tax Expense |
Income tax expense consists of:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| U.S. federal | $ | $ | ||||||
| State and local | 200 | 681 | ||||||
| Deferred | ||||||||
| Total | $ | 200 | $ | 681 | ||||
| (b) | Tax Rate Reconciliation |
Income tax expense was $200 and $681, respectively, for the years ended December 31, 2025 and 2024 differed from the amounts computed by applying the U.S. federal income tax rate of 21% for 2025 and 2024, respectively, to pretax income from continuing operations as a result of the following:
| December 31, | ||||||||||||
| 2025 | 2024 | |||||||||||
| Computed “expected” tax expense (benefit) | $ | (2,021,734 | ) | $ | 1,897 | 21.00 | % | |||||
| Increase (reduction) in income taxes resulting from: | ||||||||||||
| Change in valuation allowance | 2,398,461 | 295,361 | -24.91 | % | ||||||||
| State and local income taxes, net of federal income tax benefit | 158 | 538 | 0.00 | % | ||||||||
| Stock expense | 87,673 | 189,209 | % | |||||||||
| Research and development tax credits | (465,676 | ) | (480,338 | ) | 4.84 | % | ||||||
| Orphan drug tax credit | (115 | ) | (2,913 | ) | 0.00 | % | ||||||
| Warrant Liability | (3,605 | ) | 0.00 | % | ||||||||
| Other, net | 1,433 | 532 | -0.01 | % | ||||||||
| $ | 200 | $ | 681 | 0.00 | % | |||||||
LIPOCINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2025 and 2024
| (7) | Income Taxes – (continued) |
| (c) | Significant Components of Deferred Taxes |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2025 and 2024 are presented below:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Deferred tax assets: | ||||||||
| Stock-based compensation | $ | 1,008,378 | $ | 1,058,082 | ||||
| Net operating loss carryforwards | 40,745,388 | 34,275,198 | ||||||
| Employee benefits | 53,059 | 56,813 | ||||||
| Research and development tax credits | 7,250,717 | 6,694,003 | ||||||
| Orphan drug tax credits | 1,278,037 | 1,277,891 | ||||||
| Plant and equipment | ||||||||
| Sec. 174 Expenses | 474,260 | 4,780,931 | ||||||
| Other deductible temporary differences | 242,687 | 88,657 | ||||||
| Total gross deferred tax assets | 51,052,526 | 48,231,575 | ||||||
| Net deferred tax assets | $ | 51,052,526 | $ | 48,231,575 | ||||
| Deferred tax liabilities: | ||||||||
| Plant and equipment | (6,219 | ) | (8,778 | ) | ||||
| Total gross deferred tax liabilities | (6,219 | ) | (8,778 | ) | ||||
| Net deferred tax liabilities | $ | (6,219 | ) | $ | (8,778 | ) | ||
| Deferred tax asset/deferred tax liability | 51,046,307 | 48,222,797 | ||||||
| Valuation allowance | (51,046,307 | ) | (48,222,797 | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
The valuation allowance for deferred tax assets as of December 31, 2025 and 2024 was $51.0 million and $48.2 million. The net change in the valuation allowance was an increase of $2.8 million in 2025 and an increase of $0.5 million in 2024. A valuation allowance has been provided for the full amount of the Company’s net deferred tax assets as the Company believes it is more likely than not that these benefits will not be realized. In assessing the realizability of deferred tax assets, management considers 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 considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax planning strategies in making this assessment.
LIPOCINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2025 and 2024
| (7) | Income Taxes – (continued) |
During the year ended December 31, 2013, the Company experienced a change in ownership, as defined by the Internal Revenue Code, as amended (the “Code”) under Section 382. A change of ownership occurs when ownership of a company increases by more than 50 percentage points over a three-year testing period of certain stockholders. As a result of this ownership change, we determined that our annual limitation on the utilization of our federal net operating loss (“NOL”) and credit carryforwards is approximately $1.1 million per year. We will only be able to utilize $9.6 million of our pre-ownership change NOL carryforwards and will forgo utilizing $3.3 million of our pre-ownership change NOL carryforwards and $1.2 million of our pre-change credit carryforwards as a result of this ownership change. We do not account for forgone NOL and credit carryovers in our deferred tax assets and only account for the NOL and credit carryforwards that will not expire unutilized as a result of the restrictions of Code Section 382.
As of December 31, 2025, we had NOL and research and development credit carryforwards for U.S. federal income tax reporting purposes of approximately $160.8 million and $5.4 million, respectively. Approximately $46.5 million of the NOL will expire between 2025 and 2035 and $36.1 million of the NOL will expire 2036 through 2037. Pursuant to the Tax Cuts and Jobs Act of 2017, NOLs generated in 2018 and subsequent years have an unlimited carryforward therefore the 2025, 2024, 2023, 2022, 2020, 2019 and 2018 NOL of $78.2 million can be carried forward indefinitely. The research and development credits will begin to expire in 2033 through 2045. We have orphan drug credit carry forwards of approximately $1.3 million which will expire if unused through 2045.
We also have state NOL and research and development credit carry forwards of approximately $155 million and $1.8 million, respectively. The Company’s state NOL will not expire but can be used until exhausted under Utah Code Section 59-7-110. The state research and development credits expire in 2025 through 2039.
The Company’s federal and state income tax returns for December 31, 2022 through 2025 are open tax years.
A reconciliation of the beginning and ending amount of total unrecognized tax contingencies, excluding interest and penalties, for the year ended December 31, 2025 and 2024 are as follows:
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Balance, beginning of year | $ | $ | ||||||
| Balance, end of year | $ | $ | ||||||
LIPOCINE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2025 and 2024
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 10, 2026 | Showing above |
| 2024 | Mar 13, 2025 | |
| 2023 | Mar 7, 2024 | |
| 2022 | Mar 10, 2023 | |
| 2021 | Mar 9, 2022 | |
| 2020 | Mar 11, 2021 | |
| 2019 | Mar 13, 2020 | |
| 2018 | Mar 6, 2019 | |
| 2017 | Mar 12, 2018 | |
| 2016 | Mar 6, 2017 | |
| 2015 | Mar 10, 2016 | |
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.