Stereotaxis, Inc. Income Taxes Disclosure

12. Income Taxes

 

The provision for income taxes consists of the following (in thousands):

 Schedule of Provision For Income Taxes

		2024				2023
		Year Ended December 31,
		2024				2023
Deferred:
Federal		$	(2,577	)		$	(2,108	)
State and local			378				(773	)
Total deferred income tax expense (benefit)			(2,199	)			(2,881	)
Valuation allowance			2,199				2,881
Income tax benefit		$	—			$	—

 

 

The provision for income taxes varies from the amount determined by applying the U.S. federal statutory rate to income before income taxes as a result of the following:

 Schedule of Reconciliation of Federal Income Tax Rate

		2024				2023
		Year Ended December 31,
		2024				2023
U.S. statutory income tax rate			21.0	%			21.0	%
State and local taxes, net of federal tax benefit			0.8	%			1.7	%
Stock compensation permanent differences between book and tax			(8.0	)%			(7.2	)%
Contingent consideration permanent difference			(1.6	)%			—	%
Other permanent differences between book and tax			(0.7	)%			(2.4	)%
State rate adjustments			(2.4	)%			2.1	%
Other adjustments			0.0	%			(1.3	)%
Valuation allowance			(9.1	)%			(13.9	)%
Effective income tax rate			—	%			—	%

 

The stock compensation permanent difference relates to the February 3, 2021, Board approved grant of Performance Share Unit Award pursuant to the CEO Performance Share Unit Award Agreement (the “PSU Agreement”) to David L. Fischel, the Company’s Chief Executive Officer. Total stock-based compensation attributed to the PSU Agreement was $7.2 million and $7.1 million for the years ended December 31, 2024 and 2023, respectively, of which only a portion was allowed as a tax deduction in those years due to Internal Revenue Code Section 162(m) limitations. Included in other permanent differences between book and tax in the table above are differences such as incentive stock option expenses, nondeductible meals and entertainment, and transactions costs. The state rate adjustments are a result of changes in apportionment and various state rate law changes.

 

The components of net deferred tax assets and liabilities are as follows (in thousands):

 Schedule of Components of Deferred Tax Asset and Liabilities

		2024				2023
		Year Ended December 31,
		2024				2023
Current accruals		$	1,001			$	1,041
Operating lease liabilities			1,372				1,330
Deferred revenue			30				68
Depreciation and amortization			4,058				3,172
Deferred compensation			1,402				1,570
Net operating loss carryovers			33,198				29,118
Tax credit carryovers			462				-
Deferred tax assets			41,523				36,299
Valuation allowance			(38,851	)			(35,066	)
Net deferred tax assets before deferred tax liabilities			2,672				1,233
Operating lease right-of-use assets			(1,252	)			(1,207	)
Amortization of intangibles			(1,333	)			-
Inventory			(69	)			-
Capitalized compensation costs			(18	)			(26	)
Net deferred tax assets		$	-			$	-

 

 

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Following significant ownership changes during 2013, the Company initiated a review of the availability of its U.S. net operating loss carryforwards. As a result of this review, it was determined that a large portion of the Company’s net operating loss carryovers would expire unused due to the limitation under IRC Section 382. The Company reduced the net operating loss carryover and corresponding valuation allowance as a result of these limitations as reflected in the net operating loss carryovers in the table above. The remaining net operating loss carryforwards following the ownership change have been assigned a full valuation allowance against all deferred tax assets.

 

In assessing the realizability of deferred tax assets, the Company 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. The Company considers projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable losses, and projections for future periods over which the deferred tax assets are deductible, the Company determined that a 100% valuation allowance of deferred tax assets was appropriate.

 

As of December 31, 2024, we had gross federal net operating loss carryforwards arising from our operations of approximately $134.9 million. The federal net operating loss carryforwards reflect accumulated book losses reduced for the 2013 IRC Section 382 ownership change limitation of $188.0 million, book/tax differences and expiration of carryforwards. The federal net operating loss carryforwards generated prior to the 2018 tax year of approximately $98.8 million will expire between 2030 and 2037. The federal net operating losses generated in 2018 and thereafter will be carried forward indefinitely as a result of changes in the tax law following the Tax Cuts and Jobs Act (“TCJA”). As of December 31, 2024, we had gross state net operating loss carryforward of approximately $38.1 million which will expire at various dates between 2025 and 2043 if not utilized.

 

In addition to the net operating loss carryovers related to our operations, in connection with our acquisition of APT as discussed in Note 3, we acquired federal and state net operating loss and tax credit carryovers of APT. Our ability to utilize those carryovers and credits will be limited under IRC Section 382. The Section 382 limited net operating loss carryovers total approximately $9.1 million, of which $0.6 million was incurred prior to the 2018 effective date of the TCJA and will expire between 2035 and 2037 with the remainder available for indefinite carryforward. The applicable state net operating loss carryforwards related to APT are approximately $9.6 million with $9.1 million expiring at various dates between 2030-2038 with the remaining carried forward indefinitely. The acquired tax credit carryovers total $0.2 million for federal income tax purposes, which expire between 2036 and 2043, and state credit carryovers of $0.3 million, which expire between 2031 and 2038. Consistent with our conclusion with respect to the need for valuation allowances associated with our other deferred tax assets, the net deferred tax assets related to APT of $1.6 million at the acquisition date as well as those at December 31, 2024 were fully included in our valuation allowance.

 

The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. As the Company has a federal net operating loss carryforward from the year ended December 31, 2003 forward, all tax years from 2003 forward are subject to examination. As states have varying carryforward periods, and the Company has recently entered into additional states, the states are generally subject to examination for the previous 10 years or less.

 

 

At December 31, 2024 and 2023, the Company had less than $0.1 million in reserves for uncertain tax positions. The Company recognizes interest accrued, if any, net of tax and penalties, related to unrecognized tax benefits as components of the income tax provision, as applicable. As of December 31, 2024 and 2023, accrued interest and penalties were less than $0.1 million.