Note 7 - Income Taxes

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Income Tax Disclosure [Text Block]

7. Income Taxes 

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

	Year Ended December 31,
	2024		2023
Current expense (benefit):
Federal	$	—	$	—
State		—		—
Foreign		—		—
Current income tax benefit		—		—
Deferred expense (benefit):
Federal		—		—
State		—		—
Foreign		—		—
Deferred income tax expense		—		—
Total	$	—	$	—

The following summarizes activity related to the Company’s valuation allowance (in thousands): 

	Year Ended December 31,
	2024		2023
Valuation allowance at beginning of period	$	32,308	$	25,696
Change charged to expense (income)		6,329		6,612
Release of valuation allowance		—		—
Valuation allowance at end of period	$	38,637	$	32,308

A reconciliation of the income tax benefit computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows (in thousands): 

	Year Ended December 31,
	2024						2023
	Amount			Percent			Amount			Percent
Federal tax benefit at statutory rate	$	4,570			21.0	%	$	6,251			21.0	%
State tax benefit net of federal		701			3.2	%		118			0.4	%
Foreign rate differential		17			0.1	%		59			0.2	%
Change in deferred tax rates		34			0.2	%		—			—	%
Stock warrant costs		1,286			5.9	%		(219	)		(0.8	)%
Other permanent differences		(60	)		(0.3	)%		(73	)		(0.2	)%
Permanent provision to return items		(134	)		(0.6	)%		662			2.3	%
Stock compensation change		(85	)		(0.4	)%		(82	)		(0.3	)%
Uncertain tax provision		—			—	%		(103	)		(0.4	)%
Increase in valuation allowance		(6,329	)		(29.1	)%		(6,613	)		(22.2	)%
Total tax (expense) benefit	$	—			—	%	$	—			—	%

The principal components of the Company’s deferred tax assets and liabilities consist of the following (in thousands):

	Year Ended December 31,
	2024			2023
Deferred tax assets:
Start-up costs	$	11,792		$	9,621
Federal net operating loss carryforwards		12,965			11,598
174 R&D Carryforward		8,935			6,636
State tax loss carryforwards		560			258
Foreign net operating loss carryforwards		332			377
Fixed Assets		14			9
Tax credit carryforward		1,919			1,919
ROU Liability		104			123
Deferred compensation		2,108			1,879
Total deferred tax assets	$	38,729		$	32,420
Less valuation allowance		(38,637	)		(32,308	)
Net deferred tax assets	$	92		$	112
Deferred tax liabilities:
ROU Asset	$	(92	)	$	(112	)
Total deferred tax liabilities	$	(92	)	$	(112	)
Net deferred taxes	$	—		$	—

The Company has incurred net operating losses since inception. As of December 31, 2024, the Company had total US federal operating loss carry forwards of approximately $61.7 million. Of this, $6.1 million will expire commencing in 2035, with the rest having no set expiration date. The value of these carryforwards depends on the Company’s ability to generate taxable income. Additionally, because federal tax laws limit the time during which the net operating loss carryforwards may be applied against future taxes, if the Company fails to generate taxable income prior to the expiration dates of the carry forwards the Company may not be able to fully utilize the net operating loss carryforwards to reduce future income taxes. Net operating loss carry forwards generated in the 2018 and later years do not expire, but will only be able to offset 80% of future taxable income. Finally, the Company has not undertaken a detailed analysis of the application of IRC Section 382 with respect to limitations on the utilization of net operating loss carryforwards and other deferred tax assets as management does not believe an ownership change has occurred within the meaning of IRC Section 382. Management intends to undertake a Section 382 analysis prior to the utilization of any net operating loss carryforwards in the future. Based on current and ongoing losses, there is a full valuation allowance against the deferred tax asset for these carryforwards.

The Company conducts business in various locations and, as a result, files income tax returns in the United States federal jurisdiction, in multiple state jurisdictions, and internationally as required. As of December 31, 2024, the Company had state operating losses of approximately $4.0 million which expire commencing in 2036. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the US federal, state and local income tax authorities for all tax years in which a loss carryforward is available.

Management has evaluated the positive and negative evidence for the realizability of its deferred tax assets. The Company has cumulative losses and there is no assurance of future taxable income, therefore, valuation allowances have been recorded to fully offset the deferred tax asset at December 31, 2024. A valuation allowance of $38.6 million and $32.3 million has been established at December 31, 2024 and 2023, respectively. The change in the valuation allowance for the year ended December 31, 2024 was primarily due to additional operating losses and capitalized research costs.

The Company undertakes research and development (R&D) activities that qualify for certain tax credits for US and Australian income tax purposes. The Company has a full valuation allowance against its US federal R&D tax credits. For the 2024 tax year, there may be a potential Australian research and development tax credit, as the Company is increasing research and development activities in Australia. The Company estimates the amount of cash refund it expects to receive related to the Australian research and development tax incentive program and records the incentives when it is probable that 1) the Company will comply with relevant conditions of the program and 2) there is reasonable assurance the claim will be recovered. During the years ended December 31, 2024 and 2023, respectively, the Company has not recorded the Australian tax incentive as it is not yet probable that the terms and claim will be recovered. The federal research credits will begin to expire in the years 2037 through 2041, if not utilized.

The Company has a liability for unrecognized tax benefits of $0.3 million (excluding accrued interest and penalties) as of December 31, 2024. The Company's policy is to record interest and penalties related to income taxes as part of its income tax provision.

A reconciliation of the beginning and ending unrecognized tax benefits excluding interest and penalties is as follows (in thousands): 

	Year Ended December 31,
	2024		2023
Balance, beginning of year	$	339	$	236
Additions for tax positions related to the current year		—		103
Additions for tax positions related to prior years		—		—
Reductions due to lapse of statutes of limitations		—		—
Decreases related to settlements with tax authorities		—		—
Balance, end of year	$	339	$	339

The Company does not believe that its tax positions will significantly change due to any settlement and/or expiration of statutes of limitations prior to December 31, 2024 within the next year. 

Starting in 2022, changes to Internal Revenue Code Section 174 made by the Tax Cuts and Jobs Act of 2017 no longer permit an immediate deduction for research and development expenditures in the tax year that such costs are incurred. As a result the Company capitalized such costs in its 2024 and 2023 income tax provision, resulting in an increase in deferred tax assets. 

Australia R&D Tax Incentive

The Australian government provides an incentive for research and development carried out in their country in the form of refundable tax credits if certain conditions are met. Management assesses the Company's R&D activities and expenditures to determine which activities and expenditures are likely to be eligible under the Australian tax incentive. Annually, management estimates the refundable tax credit available to the Company based on available information and submits an application to the Australian tax authority for R&D credit approval. The Company recognizes the refundable R&D tax credits when there is reasonable assurance that the terms have been met, the refund will be received, the relevant expenditures have been incurred, and the consideration can be reliably measured. In December 2024, the Company received $0.2 million as a refundable R&D tax credit for its 2023 R&D activities in Australia, which was recorded as a reduction to research and development expense in the consolidated statements of operations when the aforementioned criteria were met.