Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes

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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). ASC 740 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected tax consequences or events that have been recognized in our financial statement or tax returns. ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in the financial statements. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. There were no significant matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return that have been recorded in our financial statements for the year ended December 31, 2024. Tax years beginning in 2021 are generally subject to examination by taxing authorities, although net operating losses from all years are subject to examinations and adjustments for at least three years following the year in which the attributes are used.
ASC 740 provides guidance on the recognition of interest and penalties related to income taxes. There were no interest or penalties related to uncertain tax positions arising in the years ended December 31, 2024 and 2023. It is the Company’s policy to treat interest and penalties, to the extent they arise, as a component of income taxes.

The income tax provision consisted of the following for the years ended December 31, 2024 and 2023 (in thousands):
December 31,
2024 2023
Current:
   Federal $ —  $ — 
   State —  — 
Total Current —  — 
Deferred:
   Federal 24  24 
   State 90  (10)
Total Deferred 114  14 
Net income tax expense $ 114  $ 14 

The net deferred tax assets (liabilities) consisted of the following for the years ended December 31, 2024 and 2023 (in thousands):
  December 31,
  2024 2023
Deferred tax assets (liabilities):          
Net operating losses $ 42,689  $ 37,268 
Tax credits 6,263  5,854 
Capitalized research and development 10,803  6,945 
Stock-based compensation 1,651  3,557 
Basis difference in tangible and intangible assets, net 1,811  1,843 
Accrued compensation 691  118 
Installment sale and revenue recognition 2,535  1,601 
Other reserves 148  336 
Lease liability 225  410 
Prepaid expenses (227) (118)
Right-of-use asset (181) (286)
Goodwill (1,022) (774)
Total deferred tax assets, net 65,386  56,754 
Less valuation allowance (65,656) (56,909)
Net deferred taxes $ (270) $ (155)

As of December 31, 2024, the Company had approximately $183.0 million of gross net operating losses for federal and state tax purposes that do not expire and $3.4 million that will begin to expire in 2031. As of December 31, 2024, the Company has various research tax credits of $6.3 million that will begin to expire in 2038.

The income tax expense for the years ended December 31, 2024 and 2023 differed from the amounts computed by applying the U.S. federal income tax rate of 21% as follows:
  December 31,
  2024 2023
Federal statutory rate 21.00  % 21.00  %
Warrants and related transaction costs 19.86  — 
Acquired in-process research and development (16.58) — 
Goodwill impairment —  (2.60)
Stock compensation (9.37) (1.40)
State taxes (0.26) 0.03 
Research tax credit 1.17  0.47 
Other 0.46  — 
Valuation allowance (16.61) (17.54)
Effective income tax rate (0.33) % (0.04) %

The valuation allowance recorded by the Company as of December 31, 2024 and 2023, resulted from the uncertainties of the future utilization of deferred tax assets mainly resulting from net operating loss carry forwards for federal and state income tax purposes as well as the federal research and experimental and orphan drug tax credits. In assessing the realization of deferred tax assets, management considers the reversal of deferred tax liabilities, as well as whether it is more likely than not that all or some portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon generation of future taxable income during the periods in which temporary differences are expected to reverse. The Company has established deferred tax liabilities for indefinite lived intangible assets consisting of goodwill that are not amortized for financial reporting purposes, but are tax deductible and therefore amortized over 15 years for tax purposes. The Company has concluded that the resulting deferred tax liability will also have an indefinite life unless there is an impairment of the related assets (for financial reporting purposes), or the disposal of the business to which the assets relate. Losses generated in years after 2017 will also have an indefinite life and will be available to offset 80 percent of any federal tax liability and will be available to offset many of the state deferred tax liabilities, subject to utilization limits. A portion of existing deferred tax assets will reverse in the future, potentially generating net operating losses that will also be available to offset a portion of the indefinite lived deferred tax liability. Based on the consideration of these facts, the Company concluded it is more likely than not that a significant portion of its remaining gross deferred tax assets less the reversal of deferred tax liabilities will not be realized in the future, accordingly, a full valuation allowance continues to be recorded against the Company’s remaining deferred tax asset as of December 31, 2024 and December 31, 2023.

The Company will continue to assess and evaluate strategies that will enable the deferred tax asset, or portion thereof, to be utilized, and will reduce the valuation allowance appropriately at such time when it is determined that the “more likely than not” criteria is satisfied.

Sections 382 and 383 of the IRC subject the future utilization of net operating losses and certain other tax attributes, such as research and experimental tax credits, to an annual limitation in the event of certain ownership changes, as defined. The Company has undergone an ownership change study through June 2020 and has determined that a "change in ownership" as defined by IRC Section 382 of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, did occur in February 2012, July 2014, and April 2017. Based on the Company having undergone multiple ownership changes throughout their history, these NOLs will free up at varying rates each year. Subsequent to the changes in ownership previously listed, the NOL 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. This could limit the amount of NOLs and research and development credits that the Company can utilize annually to offset future taxable income or tax liabilities. Subsequent ownership changes may further affect the limitation in future years. The Company is analyzing the potential impact of its equity financings on beneficial ownership from June 30, 2020 to December 31, 2024, which could result in the entire NOL carryforward balance being subject to any additional IRC Section 382 and 383 limitations. To the extent there is a limitation, there could be a reduction in the $7.0 million deferred tax asset related to federal loss carryforwards and tax credits that may have expired unutilized with an offsetting reduction in the valuation allowance.

All of the Company’s tax years are currently open to examination by each tax jurisdiction in which the Company is subject to taxation.