Note 16 - Income Taxes

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 16. Income Taxes

A reconciliation of the differences between the U.S. statutory federal income tax rate and the effective tax rate as provided in the consolidated statements of operations is as follows:

	For the Year Ended December 31,
	2024			2023
U.S. federal statutory rate		(21.0	)%		(21.0	)%
Section 382 NOL limitation		75.7	%		—
Nondeductible expenses		0.1	%		0.2	%
State income taxes, net of federal benefits		33.8	%		2.2	%
Stock-based compensation		0.3	%		6.4	%
Royalty mark to market		3.5	%		(2.1	)%
Change in valuation allowance		(70.7	)%		16.7	%
Purchase accounting		—			(20.5	)%
Goodwill impairment		—			18.1	%
Other		1.6	%		—
Effective tax rate		23.3	%		0.0	%

The federal and state income tax provision is summarized as follows (in thousands):

	For the Year Ended December 31,
	2024		2023
Current
Federal	$	—	$	—
State		—		—
		—		—
Deferred
Federal		3,049		—
State		91		—
		3,141		—
Income tax expense	$	3,141	$	—

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes, and (b) operating losses and tax credit carryforwards.

The tax effects of significant components of the Company’s deferred tax assets (liabilities) are as follows (in thousands):

	December 31,
	2024			2023
Deferred tax assets:
Net operating loss carryforwards	$	12,358		$	24,829
Stock-based compensation		15			49
Capitalized research and development		896			1,201
Intangible assets		41			53
Operating lease liabilities		25			44
Accrued compensation		5			2
Other accruals		3			—
Fixed asset basis		3			—
R&D credits		—			589
Total gross deferred tax assets		13,346			26,767
Deferred tax liabilities:
Fixed asset basis		—			(1	)
Operating lease right-of-use assets		(24	)		(42	)
Intangible assets		(5,506	)		(6,216	)
Total gross deferred tax liabilities		(5,530	)		(6,259	)
Valuation allowance		(10,957	)		(20,508	)
Net deferred tax liabilities	$	(3,141	)	$	—

At December 31, 2024, and December 31, 2023 the Company had available Federal Net Operating Loss (NOL) carryforwards of  $104.3 million. For State purposes, such NOL carryforwards were $63.8 million.  The net operating losses begin expiring in 2027. Use of these NOL carryforwards may be significantly limited under the tax rules regarding the use of losses following an ownership change under Internal Revenue Code (“IRC”) Section 382. The Company experienced a change in control during 2023 and 2024. Accordingly, utilization of its respective consolidated and/or separately computed NOL's is subject to an annual limitation for federal tax purposes under IRC Section 382. Due to this change in control, the Company estimates that  $46.2 million of $104.3 million federal NOL carryforward is effectively eliminated under IRC Section 382. Moreover, $61.2 million of its $63.8 million state NOL carry forward is also eliminated. As a result of these eliminations, the Company's federal and state NOLs were reduced to approximately $58.2 million and $2.6 million, respectively, before valuation allowance. 

The valuation allowance relates to deferred tax assets for certain items that will be deductible for income tax purposes under very limited circumstances and for which the Company believes it is not more likely than not that it will realize the associated tax benefit. However, in the event that the Company determines that it would be able to realize more or less than the recorded amount of net deferred tax assets, an adjustment to the deferred tax asset valuation allowance would be recorded in the period such a determination is made. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax planning strategies in making this assessment. Based upon the levels of historical taxable income, projections of future taxable income and the reversal of deferred tax liabilities over the periods in which the deferred tax assets are deductible, management believes it is more-likely-than-not that the Company will not realize the benefits of these deductible differences, net of the existing valuation allowance. The amount of deferred tax asset considered realizable, however, could change in the near term if estimates which require significant judgment of future taxable income during the carryforward period are increased or decreased. The valuation allowance decreased by $9.5 million from $20.5 million as of December 31, 2023 to $11.0 million as of December 31, 2024.

The Company recognizes interest and penalties relating to uncertain tax positions in income tax expense. No amounts were recorded in 2024 and 2023.

Effective January 1, 2023, repurchases of Company stock are subject to a nondeductible excise tax under the Inflation Reduction Act of 2022 equal to 1.0% of the fair market value of the shares repurchased, subject to certain limitations. There was no impact to the Company’s financial condition or results of operations in 2023 and 2024 as a result of the excise tax.

The Company files income tax returns as prescribed by tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state and local jurisdictions where applicable based on the statute of limitations that apply in each jurisdiction. The Company has no open income tax audits with any taxing authority as of December 31, 2024. The Company is still subject to income tax examinations by U.S. federal and state tax authorities for the years 2021 through 2023. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carryforward amount.