Picard Medical, Inc. Income Taxes Disclosure

11.	INCOME TAXES

 

Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign are as follows (in thousands): 

 

		Year Ended December 31,
		2025				2024
Domestic		$	(27,002	)		$	(20,570	)
Foreign			35				(500	)
(Loss) Income before (benefit) provision for income taxes		$	(26,967	)		$	(21,070	)

 

Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign consists of (in thousands):

 

		Year Ended December 31,
		2025				2024
Current:
Federal		$	-			$	-
State			35				(15	)
Foreign			-				-
Total Current			35				(15	)
Deferred:
Federal			-				-
State			-				-
Total Deferred			-				-
Total provision/(benefit)		$	35			$	(15	)

 

Reconciliation of the provision/(benefit) for income taxes calculated at the statutory rate to our provision/(benefit) for income taxes is as follows (in thousands, except percentages):

 

		Year Ended December 31,
		2025								2024
U.S. Federal statutory income tax (benefit)		$	(5,663	)			21.0	%		$	(4,421	)			21.0	%
State and local income taxes, net of federal benefit1			(491	)			1.8	%			(387	)			1.8	%
Foreign Tax Effects:
Foreign Rate Differential			1				0.0	%			(9	)			0.0	%
Foreign Non-Deductible Items			(40	)			0.1	%			-				0.0	%
Foreign NOL deferred adjustment			245				-0.9	%			-				0.0	%
Change in valuation allowance			3,947				-14.6	%			2,835				-13.5	%
Nontaxable / nondeductible items (permanent items)
Incentive Stock based compensation			32				-0.1	%			161				-0.8	%
Changes in fair values - derivative & warrant liabilities			1,265				-4.7	%			901				-4.3	%
Non-deductible Convertible Note interest and debt discount amortization			938				-3.5	%			644				-3.1	%
Non-deductible issuance costs			126				-0.5	%			306				-1.5	%
Other			2				0.0	%			41				-0.2	%
Tax Credits			(130	)			0.5	%			(178	)			0.8	%
Effects of deferred tax adjustments, net of federal benefits			(186	)			0.7	%			81				-0.4	%
Effects of change in state tax rate, net of federal benefits			46				-0.2	%			94				-0.4	%
Other			(57	)			0.2	%			(83	)			0.4	%
											-
Income Tax Provision/(Benefit) and Effective Income Tax Rate		$	35				-0.1	%		$	(15	)			0.1	%

 

¹ For the year ended December 31, 2025, the net state income tax benefit includes deferred tax effects from temporary differences primarily in Arizona and California, offset by current state income tax expense in California, New Jersey, and Texas. These jurisdictions collectively represent more than 50% of the net state and local income tax effect.

 

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

 

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

 

		Year Ended December 31,
		2025				2024
Deferred Tax Assets:
Net operating loss carry-forwards		$	10,217			$	7,440
Tax Credits Carryforwards			673			$	543
Capitalized research			1,696				1,319
Stock based Compensation			403				55
Accruals and reserves			297				502
Inventory allowance			710				687
Debt Issuance Costs			493				-
Right-of-use Lease liability			132				242
Other			3				3
Gross deferred income tax assets			14,624				10,791
Less: Valuation allowance			(14,429	)			(10,483	)
Net Deferred Income Tax Assets, net of valuation allowance			195				308
Deferred Tax Liabilities:
Right-of-use asset			(129	)			(223	)
Depreciation and amortization			(66	)			(85	)
Total Deferred Tax Liability			(195	)			(308	)
Net Deferred Income Tax Assets, net of valuation allowance		$	-			$	-

     

As of December 31, 2025, the Company had federal and state net operating loss carryforwards of approximately $40.6 million and $37.7 million, respectively. Federal net operating loss (“NOL”) carryforwards generated after tax year 2017 are subject to an 80% limitation on taxable income, do not expire and will carryforward indefinitely. State net operating loss carryforwards in the amount of $0.1 million begin expiring in 2032.

 

In addition, as of December 31, 2025, the Company also had federal research and development tax credit carryforwards of $0.7 million, which may be available to reduce future tax liabilities and expire beginning in 2042.

     

Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income and tax liabilities.

 

Realization of deferred tax assets is dependent upon future earnings, if any, the timing, and amount of which are uncertain. Due to the lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance. Management believes, based on a variety of factors, it is more likely than not that the deferred income tax assets will not be fully realized. The valuation allowance increased by approximately $3.9 million and $2.8 million during the years ended December 31, 2025, and 2024, respectively.

 

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act ("TCJA"), modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions including the immediate expensing of United States research and development expenditures. The legislation has multiple effective dates, with certain provisions effective in the current fiscal period and others in the fiscal year ended January 31, 2027.

 

Among its many provisions, the Act substantially amended the treatment of research or experimental (R&E) expenditures under the Internal Revenue Code. Under prior law (post-TCJA), domestic R&E expenditures incurred in tax years beginning after December 31, 2021, were required to be capitalized and amortized over five years (domestic) or fifteen years (foreign). The OBBBA introduced new Section 174A, which permits taxpayers to immediately deduct domestic R&E expenditures for tax years beginning after December 31, 2024, or elect to capitalize and amortize over not less than 60 months; it also incorporates transition rules for previously capitalized domestic R&E expenditures (incurred or paid from January 1, 2022 through December 31, 2024) and allows eligible small businesses to apply the new treatment retroactively to those years. For foreign R&E expenditures, the 15-year amortization requirement remains unchanged.

 

In addition, all taxpayers are permitted to make an election to accelerate the deductions for unamortized R&E expenditures that were capitalized after December 31, 2021, and before January 1, 2025, over a one-or-two year period beginning with the taxpayer’s first tax year beginning after December 31, 2024.

 

The Company elected to continue to capitalize and amortize Sec 174 costs for 2025 and continue to amortize all pre-2025 unamortized costs.

 

Uncertain Tax Positions

 

It is the Company’s policy to include penalties and interest expense related to income taxes as a component of interest and other income, net, as necessary. As of December 31, 2025 and 2024, there were no accrued interest and penalties related to uncertain tax positions.

 

There are no uncertain tax positions as of December 31, 2025.

 

The Company is subject to examination by U.S. federal and state tax authorities for all years since the Company’s inception in 2021.

 

Income Tax Payments

 

The following is a summary of income taxes paid by jurisdiction, net of refunds, pursuant to the disclosure requirements of ASU No. 2023-09 (in thousands):

 

		Year Ended December 31,
		2025				2024
United States - Federal		$	-			$	-
United States - California			3				-
United States - New Jersey			-				-
United States - Texas			-				-
United States - other states			1				-
Germany			-				-
Australia			-				-
Total Cash paid for income taxes, net of refunds		$	4			$	-