NEXGEL, INC. Income Taxes Disclosure

21. Income Taxes

 

The Company has established a full valuation allowance for its deferred tax assets based on management’s belief that it is more likely than not that the related deferred tax assets will be realized. For the years ended December 31, 2025 and 2024, there was no income tax expense or benefit.

 

At December 31, 2025 and 2024, the Company had no recorded tax liabilities for uncertain tax positions. The Company does not expect any significant changes to the estimate amount of liabilities associated with uncertain tax positions in the next 12 months.

 

The income tax (benefit) provision consists of the following ($ in thousands):

 Schedule of Income Tax (Benefit) Provision

		For The Years Ended
		December 31,
		2025				2024
Federal:
Current		$	(425	)		$	(640	)
Deferred			425				640
State and local:
Current			(104	)			(161	)
Deferred			104				161
Income tax provision		$	—			$	—

 

 

For the years ended December 31, 2025 and 2024, the expected tax benefit based on the statutory rate reconciled with the actual benefit is as follows:

 Schedule of Effective Income Tax Rate Reconciliation

		For The Years Ended December 31,
		2025								2024
U.S. federal statutory rate		$	(608	)			21.0	%		$	(727	)			21.0	%
State tax rate, net of federal benefit			(153	)			5.3	%			(184	)			5.3	%
Permanent differences:
Non-deductible expenses			78				(2.7	)%			111				(3.2	)%
Timing differences			151				(5.2	)%			(1	)			—	%
Change in valuation allowance			532				(18.4	)%			801				(23.1	)%
Income tax provision		$	—				—	%		$	—				—	%

 

For the years ended December 31, 2025 and 2024, differences between the expected tax expense based on the federal statutory rate and the actual tax expense is primarily attributable to the net losses incurred and the corresponding increase to the valuation allowance.

 

As of December 31, 2025 and 2024, the Company’s deferred tax assets consisted of the effects of temporary differences attributable to the following ($ in thousands):

 Schedule of Deferred Tax Assets and Liabilities

		As of December 31,
		2025				2024
Deferred tax assets:
Net operating loss carryforwards		$	6,193			$	5,661
Other			12				7
Total deferred tax assets			6,205				5,668
Valuation allowance			(6,205	)			(5,668	)
Deferred tax assets, net of valuation allowance		$	—			$	—

 

As of December 31, 2025 and 2024, the Company has approximately $23.6 million and $21.5 million of federal NOL carryovers, respectively, which begin to expire in 2029 through 2037. Similarly, the subsidiary’s Pennsylvania state returns reported state NOL carryovers of approximately $23.6 million and $21.5 million, as of December 31, 2025 and 2024, respectively. However, these loss carryforwards on a separate company basis may be subject to limitations on the amounts that may be utilized pursuant to Internal Revenue Code section 382 and applicable state law. Section 382 imposes significant limitations on the utilization of net operating losses after certain changes of corporate ownership. The Company will need to determine the amount of loss carryforwards that may be utilized in the future as necessary.

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the future generation of taxable income during the years in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance against net deferred tax assets at December 31, 2025 and 2024 because management has determined that it is more likely than not that these deferred tax assets will not be realized.

 

The Company is subject to taxation in the U.S. and various states. Based on the history of net operating losses all jurisdictions and tax years are open for examination until the operating losses are utilized or the statute of limitations expires. As of December 31, 2025 and 2024, the Company does not have any significant uncertain tax positions.