NEUROONE MEDICAL TECHNOLOGIES Corp Income Taxes Disclosure

NOTE 12 - Income Taxes

 

The effective tax rate for the Company for the years ended September 30, 2025 and 2024 was zero percent. A reconciliation of income tax computed at the statutory federal income tax rate to the provision (benefit) for income taxes included in the accompanying statements of operations for the years ended September 30 is as follows:

 

		2025				2024
Income tax benefit at federal statutory rate			(21.0	)%			(21.0	)%
State income tax, net of federal benefit			(7.7	)			(7.7	)
Research credits			(7.8	)			(2.4	)
Stock-based compensation and other			(3.6	)			1.9
Valuation allowance			40.1				29.2
Effective tax rate			—	%			—	%

 

Significant components of the Company’s deferred tax assets and liabilities are summarized in the tables below as of September 30:

 

		2025				2024
Deferred tax assets:
Federal and state operating loss carryforwards		$	14,159,229			$	13,789,594
Acquired intangibles			32,164				30,258
Accruals and other			84,211				97,803
Research and development capitalization			3,236,926				2,650,371
Research and development credit carryforwards			1,889,174				1,609,718
Stock-based compensation			1,165,693				986,952
Total deferred tax assets			20,567,397				19,164,696
Deferred tax liabilities:
Fixed assets and other			(92,060	)			(136,659	)
Total deferred tax liabilities			(92,060	)			(136,659	)
Valuation allowance			(20,475,337	)			(19,028,037	)
Net deferred tax assets		$	—			$	—

As of September 30, 2025 and 2024, the Company had gross deferred tax assets of approximately $20,567,000 and $19,165,000, respectively. Realization of the deferred assets is primarily dependent upon future taxable income, if any, the amount and timing of which are uncertain. The Company has had significant pre-tax losses since its inception. The Company has not yet generated revenues from sales to the level of becoming profitable. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance of approximately $20,475,000 and $19,028,000 as of September 30, 2025 and 2024, respectively. Net deferred tax assets will continue to require a valuation allowance until the Company can demonstrate their realizability through sustained profitability or another source of income.

 

As of September 30, 2025 and 2024, the Company’s federal net operating loss carryforwards were approximately $49,207,000 and $47,958,000, respectively. The Company had federal research credit carryforwards as of September 30, 2025 and 2024 of approximately $1,523,000 and $1,304,000, respectively. The federal net operating loss incurred prior to January 1, 2018 and tax credit carryforwards will begin to expire in 2036 if not utilized. Federal net operating losses incurred after December 31, 2017 will not expire. As of September 30, 2025 and 2024, the Company had state net operating loss carryforwards of approximately $49,415,000 and $48,030,000, respectively. The Company had state research credit carryforwards of approximately $886,000 and $747,000 as of September 30, 2025 and 2024, respectively. The state net operating loss carryforwards will begin to expire in 2031, if not utilized, and the state research credit carryforwards will begin to expire in 2032 if not utilized.

 

Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. Generally, in addition to certain entity reorganizations, the limitation applies when one or more “5-percent shareholders” increase their ownership, in the aggregate, by more than 50 percentage points over a 36-month testing period or beginning the day after the most recent ownership change, if shorter. The annual limitation may result in the expiration of net operating losses and credits before utilization.

 

In accordance with ASC 740, Income Taxes (“ASC 740”), specifically related to uncertain tax positions, a Company is required to use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. A reconciliation of the beginning and ending amounts of unrecognized tax positions for the years ended September 30 is as follows:

 

		2025				2024
Unrecognized tax positions, beginning of year		$	284,068			$	231,968
Gross increase, current year tax positions			49,314				52,100
Unrecognized tax positions, end of year		$	333,382			$	284,068

 

 

If recognized, none of the unrecognized tax positions would impact the Company’s income tax benefit or effective tax rate as long as the Company’s net deferred tax assets remain subject to a full valuation allowance. The Company does not expect any significant increases or decreases to the Company’s unrecognized tax positions within the next 12 months.

 

In accordance with ASC Topic 740, Income Taxes guidance, the Company has adopted a policy under which, if required to be recognized in the future, interest related to the underpayment of income taxes will be classified as a component of interest expense and any related penalties will be classified in operating expenses in the accompanying statements of operations.

 

The Company has tax filing obligations in the following jurisdictions: U.S. federal, Minnesota and California. The income tax returns since 2022 are subject to examination by the federal and state taxing authorities.