The loss from continuing operations before income tax expense (or benefit) for the year ended December 31, 2025 is $8.9 million and for the year ended December 31, 2024 is $5.7 million. The Company has no sources of foreign income or losses and therefore is not subject to foreign income taxes.

The Company did not pay any cash income taxes for the year ended December 31, 2025.

The provision for income taxes differs from the amount which would result by applying the federal statutory income tax rate to pre-tax loss for the years ended December 31, 2025 and 2024.

A reconciliation of the provision computed at the federal statutory rate to the provision for income taxes included in the accompanying statements of operations for the Company is as follows (in thouands):

California makes up the majority of the state income tax expense, net of federal income tax effect category.

For the year ended December 31, 2025 the Company’s effective tax rate is below the federal statutory income tax rate of 21% due to the Company's position to establish a full valuation allowance on its deferred tax assets. For the year ended December 31, 2024, the Company’s effective tax rate is below the federal statutory income tax rate of 21% primarily due to state income taxes, net of federal benefit and the Company’s position to establish a full valuation allowance on its deferred tax assets.

The tax effects of temporary differences and carryforwards that give rise to significant portions of the net deferred tax assets are presented below (in thousands):

The Company has recorded a valuation allowance for its deferred tax assets that it does not believe will be realizable at a more likely than not level based on analysis of all available sources of taxable income. The valuation allowance increased by $1.7 million and $0.9 million for the years ended December 31, 2025 and 2024, respectively, due to current and previous year losses and credits claimed.

As of  December 31, 2025 and 2024, the Company had federal net operating loss carryforwards of approximately $43.8 million and $35.5 million, respectively, which will begin to expire in 2036. Approximately $43.3 million of federal net operating losses can be carried forward indefinitely. As of  December 31, 2025 and 2024, the Company had state net operating loss carryforwards for California of approximately $2.0 million and $2.6 million, respectively, which will begin to expire in 2031. The Company also had federal and state research and development credit carryforwards of approximately $13 thousand and $372 thousand, respectively, as of  December 31, 2025. The federal credits start to expire in 2045. The California credits carryforward indefinitely.

Federal and state tax laws impose substantial restrictions on the utilization of net operating loss and credit carryforwards in the event of an “ownership change” for tax purposes, as defined in Section 382 of the Internal Revenue code. Accordingly, the Company’s ability to utilize these carryforwards may be limited as a result of such ownership changes. Such a limitation could result in limitation in the use of net operating losses in future years and possibly a reduction of the net operating losses available. The Company performed a 382 study in 2025 to determine if any ownership changes have occurred during 2025 which resulted in some tax attributes expiring prior to being able to be utilized due to Section 382 limitations. The Company had $42.5 million of federal net operating losses incurred prior to the ownership change in 2025. Of this amount, the Company estimated that $143 thousand of these tax attributes can be used each year due to the annual Section 382 limitations.

A reconciliation of the beginning and ending amount of gross unrecognized tax positions is as follows (in thousands):

During the year ended December 31, 2025 the amount of unrecognized tax benefits increased by $7 thousand due to current year research and development credits generated during the year offset by a reduction in research and development credits available for use due to application of the Section 382 limitations. During the year ended December 31, 2024 the amount of unrecognized tax benefits decreased by $10 thousand due to additional research and development credits generated during the year offset by a reduction in research and development credits available for use due to application of the Section 382 limitations. As of December 31, 2025 and 2024, the total amount of unrecognized tax benefits was $115 thousand and $108 thousand, respectively. The reversal of the uncertain tax benefits would not affect the Company’s effective tax rate to the extent that it continues to maintain a full valuation allowance against its deferred tax assets.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes line item in the statements of operations. As of December 31, 2025, and 2024, the Company had not accrued any interest or penalties related to uncertain tax positions. The Company does not anticipate any material change in its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may change during the next year for items that arise in the ordinary course of business.

The Company files tax returns in U.S. Federal and state jurisdictions. The tax periods from 2018 to 2025 remain open to examination in all jurisdictions. In addition, any tax losses that were generated in prior years and carried forward may also be subject to examination by the respective authorities. The Company is not currently under examination by income tax authorities for federal or state purposes.

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted into law. The OBBBA enacts significant changes to U.S. tax regulations, including the restoration of 100% bonus depreciation on qualifying asset purchases and a return to immediate deductibility of domestic R&D expenditures. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The legislation did not have a material impact on our fiscal 2025 effective tax rate or consolidated financial statements and is not expected to have a material impact in fiscal 2026. We continue to review the OBBBA tax provisions to assess impacts to our financial statements.