Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Note 9 – Income Taxes

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

	For the Years Ended December 31,
(Dollars in thousands)	2024			2023
Federal:
Current	$	-		$	-
Deferred		(4,030	)		(4,165	)
State and local:
Current		-			-
Deferred		(1,393	)		(1,388	)
		(5,423	)		(5,553	)
Change in valuation allowance		5,423			5,553
Income tax provision (benefit)	$	-		$	-

The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective tax rate for the year’s ended December 31, 2024 and 2023 is as follows:

	For the Years Ended December 31,
	2024			2023
Tax benefit at federal statutory rate		(21.0	)%		(21.0	)%
State taxes, net of federal benefit		(7.0	)%		(7.0	)%
Nondeductible compensation		3.8	%		4.7	%
Permanent differences		(0.1	)%		0.2	%
True up adjustments		(0.5	)%		(0.5	)%
Change in valuation allowance		24.8	%		23.6	%
Effective income tax rate		0.0	%		0.0	%

ENVVENO MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant components of the Company’s deferred tax assets at December 31, 2024 and 2023 are as follows:

	December 31,
(In thousands)	2024			2023
Deferred tax assets:
Net operating loss carryforwards	$	22,163		$	17,229
Research and development credit carryforwards		186			186
Research and development expense		5,347			5,367
Intangible assets		190			218
Operating lease liability		298			393
Stock-based compensation		2,245			1,889
Impairment loss		137			137
Property and equipment		25			-
Unrealized loss on short-term investments		6			-
Total gross deferred tax assets		30,597			25,419
Deferred tax liabilities
Operating lease asset		(282	)		(377	)
Unrealized gain on short-term investments		-			(131	)
Property and equipment		-			(19	)
Total net deferred tax assets		30,315			24,892
Less: valuation allowance		(30,315	)		(24,892	)
Total	$	-		$	-

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 $5.4 million and $5.6 million during the years ended December 31, 2024 and 2023, respectively.

Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use net operating loss (NOL) carryforwards and other pre-change tax attributes to offset its post-change income taxes may be limited. Due to various equity transactions, the Company’s ownership changes crossed the 50% threshold in 2018, 2020, 2021 and 2024, creating NOL annual use limitations based on the Company’s value at each of the change dates. Further, the federal annual limit of NOL use is 80% of taxable income. As a result, the maximum amount of NOL the Company may use in any year is currently 80% of taxable income for that year, or $2.0 million, whichever is less.

At December 31, 2024 and 2023, the Company net operating loss carryforwards for federal income tax purposes of approximately $72.2 million and $61.7 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. Post 2018 federal NOLs of approximately $60.2 million can be carried forward indefinitely. Based on the 2020, 2021, and 2024 ownership changes, the Company expects substantially all of its pre-2018 federal NOLs to expire unused.

To the extent the Company utilizes its NOL carryforwards 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.

As of December 31, 2024 and 2023, the Company had net operating loss carryforwards for state income tax purposes of approximately $97.7 million and $61.1 million, respectively, which can be carried forward for twenty years and begin to expire in 2029.

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 Company’s federal income taxes for the years beginning in 2020 remain subject to examination. The Company’s state and local income tax returns for the years beginning in 2021 remain subject to examination. No tax audits were initiated during 2024 or 2023.

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, 2024 and 2023. 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.

ENVVENO MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS