Note 7 – Income Taxes 

The components of net loss before income taxes are as follows:

ASC 740, Income Taxes, 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 the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. The Company has reviewed the positive and negative evidence related to the realizability of the deferred tax assets and has concluded that the deferred tax assets are not “more likely than not” to be realized. The valuation allowance increased by $4,372,000 and $4,606,000 during the years ended December 31, 2025 and 2024, respectively.

The provision for income taxes for December 31, 2025 and 2024, consists of the following:

*Total provision for income taxes of $800 for each of the years ended  December 31, 2025 and 2024, is recorded in general and administrative expenses on the Company’s consolidated statements of operations and comprehensive loss as it is not considered a material amount. 

Pursuant to the disclosure requirements of ASU 2023-09, the differences between the Company’s effective income tax rate and the U.S. federal statutory income tax rate for the year ended December 31, 2025, are as follows:

(1) During the year ended December 31, 2025, Illinois made up the majority (greater than 50 percent) of the tax effect in this category.

As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differed from the statutory federal income tax rate as follows:

Deferred tax assets and liabilities consist of the following:

Cash paid for income taxes, net of refunds received, by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is not material.

As of December 31, 2025, the Company had total federal net operating loss carryforwards of approximately $22,575,000, which will begin to expire in 2035. Losses generated after 2017 will be carried forward indefinitely. As of  December 31, 2025, the Company had state net operating loss carryforwards of approximately $22,605,000 which will begin to expire in 2035.

As of December 31, 2025, the Company had federal and state tax credits of $2,937,000 and $194,000, respectively. The federal credits begin to expire in 2035 and the state credits begin to expire in 2026.

The Tax Reform Act of 1986 limits the use of net operating carryforwards and R&D credits in certain situations where changes occur in the stock ownership of a company. In the event the Company has had a change in ownership, utilization of the carryforwards and R&D credits could be limited. The Company has not performed a net operating loss or R&D credit utilization study to date.

The Company accounts for uncertain tax positions in accordance with ASC 740-10, “Accounting for Uncertainty in Income Taxes.” ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or are expected to be taken on a tax return. It is the Company’s policy to include penalties and interest expense related to income taxes as an income tax expense.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2025 and 2024, is as follows:

Included in the balance of uncertain tax benefits as of  December 31, 2025, are $626,228 of tax benefits that, if recognized, would not impact the effective tax rate as it would be offset by the reversal of related deferred tax assets which are subject to a full valuation allowance. The Company anticipates that no material amounts of unrecognized tax benefits will be settled within 12 months of the reporting date. As of December 31, 2025, the Company had no accrued interest or penalties recorded related to uncertain tax positions.

The Company files and/or plans to file U.S. federal, California, Texas, and Illinois state tax returns. The Company is subject to California state minimum franchise taxes. All tax returns will remain open for examination by the federal and state taxing authorities for three and four years, respectively, from the date of utilization of any net operating loss carryforwards or R&D credits. In addition, due to the operations in certain foreign countries, the Company became subject to local tax laws of such countries. Nonetheless, as of December 31, 2025, due to the insignificant expenditures in such countries, there was no material tax effect to the Company’s 2025 consolidated financial statements.

On July 4, 2025, the One, Big, Beautiful Bill Act (“OBBBA”) was enacted. OBBBA added Section 174A to the Internal Revenue Code, which generally permits taxpayers to deduct domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024. Foreign research or experimental expenditures continue to be capitalized and amortized over 15 years. Accordingly, for the year ended December 31, 2025, the Company deducted domestic research and experimental expenditures as incurred for tax purposes and continued to capitalize and amortize foreign research and experimental expenditures in accordance with applicable tax law. The Company is also evaluating the election of an available transition method with respect to previously capitalized domestic research or experimental expenditures from prior tax years.