Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

A reconciliation of the federal statutory income tax rate and the effective income tax rate is as follows:

	December 31,
	2024			2023
Federal statutory rate		21	%		21	%
Change in valuation allowance		13	%		-19	%
State income taxes, net of federal benefit		2	%		1	%
Stock option cancellation impact		-38	%		—	%
Impact of state tax rate change		3	%		—	%
Stock compensation and other permanent items		-1	%		-1	%
Other		—	%		-2	%
Effective income tax rate		—	%		—	%

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

	December 31,
	2024			2023
Deferred tax assets
Net operating loss carryforwards	$	25,012,000		$	23,803,000
Research and development tax credits		2,842,000			2,842,000
Stock-based compensation		11,000			1,839,000
Capitalized research and development		168,000			161,000
Lease liability		37,000			—
Accruals and others		196,000			294,000
Total deferred tax assets		28,266,000			28,939,000
Less: Valuation allowance		(28,230,000	)		(28,939,000	)
Deferred tax assets, net of valuation allowance		36,000			—
Deferred tax liabilities
Right-of-use assets		(36,000	)		—
Total deferred tax liabilities		(36,000	)		—
Net deferred tax assets (liabilities)	$	—		$	—

The Company revised its prior year deferred tax assets and rate reconciliation tables to include deferred tax assets from net operating losses and research and development tax credits with a corresponding valuation allowance that were previously excluded. The Company also revised its uncertain tax position in the prior year for a portion of the research and development credits not deemed to be more likely than not. The Company carries a full valuation allowance against these deferred tax assets, therefore, the adjustments had no effect on the balance sheets, statements of operations and cash flows for the periods presented. The deferred tax assets and valuation allowance as of December 31, 2024 decreased by approximately $0.7 million.

As of December 31, 2024, the Company has federal and state net operating loss carryforwards of approximately $110.8 million and $55.8 million, respectively. The federal NOL carry forwards (generated prior to 2018) of $61.9 million begin expiring in 2027. The federal NOL carryforwards (generated after 2018) of $48.9 million will never expire but may only offset 80% of the Company’s taxable income. This change may require us to pay federal income taxes in future years despite generating a loss for federal income tax purposes in prior years. The California NOL begin expiring in 2028 and other state NOL carryforwards begin expiring in various years, starting in 2037.

As of December 31, 2024, the Company had research and development credit carryforwards of $2.4 million for federal income tax purposes and $1.5 million for California state income tax purposes available to reduce future taxable income, if any. The federal research and development credit carryforwards expire beginning 2028 and California credits can be carried forward indefinitely.

The Company’s ability to utilize its net operating loss and research and development credit carryforwards may be limited pursuant to Internal Revenue Code of 1986 (“IRC”) Sections 382 and 383 in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards, and does not expect this analysis to be completed within the next twelve months.

On June 27, 2024, California Senate Bill 167 (“SB 167”) was enacted into law, which provides for a three-year suspension of net operating losses (“NOLs”) under the California Personal Income Tax and Corporation Tax, a three-year cap on the use of business incentive tax credits to offset no more than $5.0 million of tax per year, and retroactive application of the Franchise Tax Board’s Legal Ruling 2006-1 issued on April 28, 2006, with respect to the treatment of apportionment factors attributable to income exempt from California Corporation Tax Law. The Company has a taxable loss for the year ending December 31, 2024, and therefore is not affected by the limitation.

On June 29, 2024, California Senate Bill 175 (“SB 175”) was also enacted into law, which is a companion bill to SB 167. SB 175 allows corporate income taxpayers to get refunds for a range of tax credits, including the research and development and orphan drug credits. It allows for a taxpayer to make an irrevocable election to receive an annual refundable credit amount for qualified credits. For taxable years beginning on or after January 1, 2024, and before January 1, 2027, taxpayers may receive a refundable credit equal to 20% of the qualified credits that would have otherwise been available but for the $5.0 million business tax credit limitation enacted in SB 167. The Company has a taxable loss for the year ending December 31, 2024, and therefore is not affected by the SB 175 limitation.

The following table, summarizes the activity related to our uncertain tax positions:

	Years Ended December 31,
	2024		2023
Balance at the beginning of the year	$	3,273,000	$	3,273,000
Increase (decrease) related to prior year tax positions		—		—
Increase (decrease) related to current year tax positions		—		—
Increase (decrease) related to settlements with taxing authorities		—		—
Increase (decrease) related to lapse in statute of limitations		—		—
Balance at the end of the year	$	3,273,000	$	3,273,000

Due to the full valuation allowance that the Company has on the deferred tax assets, there are no unrecognized tax benefits that would impact the effective tax rate, if recognized. It is not anticipated that there will be significant change in the unrecognized tax benefits over the next 12 months. The Company will recognize interest and penalties related to unrecognized tax benefits as income tax expense when incurred. To date, since no benefit has been taken related to the uncertain tax positions, there has been no interest and penalties recognized.

The Company is subject to taxation in the U.S. federal jurisdiction and various state jurisdictions. The Company is subject to examination of its income tax returns since inception by U.S. federal and state tax authorities due to its NOLs and R&D credits. The Company is not currently under audit with the Internal Revenue Service, state or local jurisdictions, nor has it been notified of any other potential future income tax audit.