Note 11 - Income Taxes

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Income Tax Disclosure [Text Block]

11. Income Taxes

A reconciliation of taxes utilizing the expected federal tax rate of 21% and the effective tax rate is as follows:

	Years ended December 31,
	2024			2023
Computed “expected” income tax benefit		21.0	%		21.0	%
State income tax benefit, net of federal income tax benefit		5.0	%		6.3	%
Tax credits		1.0	%		0.6	%
Foreign rate differential		0.2	%		0.0	%
Change in valuation allowance		(24.8	)%		0.0	%
Stock Compensation		(3.5	)%		0.0	%
Other		1.1	%		(27.9	)%
Total income taxes		—	%		—	%

The components of the Company’s deferred tax assets and liabilities are as follows:

	Years ended December 31,
	2024			2023
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	20,058		$	18,799
Tax credit carryforwards		2,387			2,315
Capitalized research and development		1,553			1,288
Stock-based compensation		2,809			2,504
Lease liabilities		80			13
Accruals & Others		7			—
Total deferred tax assets		26,894			24,919
Less: valuation allowance		(26,814	)		(24,906	)
Deferred tax assets		80			13
Deferred tax liability:
Operating lease assets		(80	)		(13	)
Total deferred tax liability		(80	)		(13	)
	$	—		$	—

The Company has recorded a valuation allowance against its deferred tax assets for the years ended December 31, 2024 and 2023, because the Company’s management believes that it is more likely than not that these assets will not be realized. The valuation allowance increased by approximately $1.9 million and $1.8 million for the years ended December 31, 2024 and 2023, respectively, primarily as a result of operating losses generated with no corresponding financial statement benefit.

As of December 31, 2024, the Company had federal net operating loss carryforwards, or NOLs, of approximately $72.9 million to offset future federal taxable income and state NOLs of approximately $72.2 million to offset future state taxable income. The federal and state NOLs generated for annual periods prior to January 1, 2018 begin to expire in 2033. The Company’s federal NOL generated for the years ended December 31, 2018 through December 31, 2024, which amount to $46.5 million, can be carried forward indefinitely, however, are limited to be utilized to offset 80% of taxable income in each successive year. As of December 31, 2024, the Company also has federal and state tax research and development credit carryforwards of approximately $1.6 million and $1.0 million, respectively, to offset future income taxes. The federal and state research and development tax credit carryforwards begin to expire in 2033 and 2029, respectively.

Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has recently completed several equity financings transactions which have either individually or cumulatively resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code or could result in a change in control in the future. The Company expects the impact of any limitation on the use of its net operating loss or credit carryforwards will have a material impact on the Company’s consolidated financial statements since the Company has a full valuation allowance against its net deferred tax assets due to the uncertainty regarding future taxable income for the foreseeable future.

For all years through December 31, 2024, the Company generated research credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed, and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance.

The Tax Cuts and Jobs Act (TCJA) resulted in significant changes to the treatment of research and developmental (R&D) expenditures under Section 174 of the IRC.  For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all R&D expenditures that are paid or incurred in connection with their trade or business. Specifically, costs for U.S.-based R&D activities must be amortized over five years and costs for foreign R&D activities must be amortized over 15 years—both using a midyear convention. As of December 31, 2024, the Company capitalized a substantial amount of R&D expenditures primarily related to research and development activities performed in the US.

The Company has determined that any uncertain tax positions would have no material impact on the consolidated financial statements of the Company and there are no unrecognized tax benefits or related interest and penalties accrued for the period for the years ended December 31, 2024 and 2023.

The Company is subject to U.S. federal income tax and Massachusetts state income tax. The statute of limitations for assessment by the IRS and state tax authorities is open for all periods from inception through December 31, 2023; currently, no federal or state income tax returns are under examination by the respective taxing authorities.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, or CARES, Act was signed into law making several changes to the Internal Revenue Code. The changes include but are not limited to increasing the limitation on the amount of deductible interest expense, allowing companies to carryback certain net operating losses, and increasing the amount of net operating loss carryforwards that corporations can use to offset taxable income. The tax law changes in the CARES Act did not have a material impact on the Company’s income tax provision.