Note 9 – Income Taxes

The domestic and foreign components of net loss before income taxes are as follows:

 Schedule of Domestic and Foreign Components of Net Loss Before Income Taxes

The following summarizes the Company’s income tax provision (benefit):

Schedule of Income Tax Provision (Benefit) 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures by requiring more granular disaggregation in the effective tax rate (“ETR”) reconciliation and providing expanded information regarding income taxes paid, categorized by jurisdiction. The Company adopted the provisions of ASU 2023-09 on a prospective basis effective January 1, 2025.

In accordance with this guidance, the following table provides a disaggregated reconciliation of the Company’s effective income tax rate to the U.S. statutory federal income tax rate:

 Schedule of Effective Income Tax Rate Reconciliation

The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective tax rate for the year ended December 31, 2024 is as follows in accordance with the guidance prior to adoption of ASU 2023-09:

The Company’s state and local income tax expense is primarily driven by its operations in California. For the year ended December 31, 2025, California represents greater than 50% of the state and local income tax component of the effective tax rate reconciliation. No other individual state or local jurisdiction accounted for more than 50% of the aggregate state and local tax effect for the year ended December 31, 2025.

Significant components of the Company’s deferred tax assets are as follows:

Schedule of Deferred Tax Assets and Liabilities  

On July 4, 2025 the One Big Beautiful Bill Act, or OBBBA, was enacted. The legislation includes several changes to the U.S. federal corporate income tax law, among other things, reinstating 100% bonus depreciation on qualified fixed assets, immediate expensing of domestic research and development expenditures, and favorable rules for determining the limitation on business interest expense. These changes were retroactively enacted for tax years beginning after December 31, 2024 with certain provisions effective after January 19, 2025 and were reflected in the income tax provision for the year ended December 31, 2025. The provisions of the OBBBA did not have a material impact on the effective income tax rate.

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of any future tax benefit is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s history of operating losses, management believes that recognition of the deferred tax assets arising from the above listed future tax benefits is currently not more likely than not to be realized and, accordingly, has provided a full valuation allowance. The valuation allowance increased by $4.2 million and $5.4 million during the years ended December 31, 2025 and 2024, respectively. 

As of December 31, 2025 and 2024, the Company net operating loss carryforwards for federal income tax purposes of approximately $95.6 million and $72.2 million, respectively. Of this, pre-2018 federal NOLs of approximately $12.0 million may be carried forward for twenty years and begin to expire in 2029. The remaining post 2018 federal NOLs of approximately $83.6 million can be carried forward indefinitely and could be used to offset up to 80% of taxable income in all the future years.

As of December 31, 2025 and 2024, the Company had net operating loss carryforwards for state income tax purposes of approximately $114.0 million and $97.7 million, respectively, which can be carried forward for twenty years and begin to expire in 2029.

To the extent the Company utilizes its NOL carryforward in the future, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities of the future period tax return in which the attribute is utilized. The Company also has federal research and development tax credit carryforwards of approximately $0.2 million which begin to expire in 2027.

The utilization of the Company’s net operating loss carryforwards and research tax credit carryovers could be subject to annual limitations under Section 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), due to ownership change limitations that may have occurred previously or that could occur in the future. These ownership changes limit the amount of net operating loss carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383 of the Code, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percent points over a three-year period. The Company has not completed an analysis of an ownership change under Section 382 of the Code. To the extent that a study is completed and an ownership change is deemed to occur, the Company’s net operating losses and tax credits could be limited.

The Company files income tax returns in the U.S. federal jurisdiction as well as California and local jurisdictions and is subject to examination by those taxing authorities. The statute of limitations for assessment by the IRS and state tax authorities is open for tax years ending December 31, 2025, 2024, 2023, 2022 and 2021, although carryforward attributes that were generated for tax years prior to 2021 may still be adjusted upon examination by the IRS or state tax authorities if they either have been, or will be, used in future period. No tax audits were initiated during 2025 or 2024. For the fiscal year ended December 31, 2025, the Company did not make any payments for federal or state income taxes, net of refunds received.

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2025 and 2024. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date. The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the statements of operations.