Note 11 - Income Taxes

12 Months Ended

Dec. 31, 2025

11. Income Taxes

The Company has no current or deferred income taxes as of December 31, 2025 and December 31, 2024.

Income taxes vary from the statutory federal income tax rate applied to loss before income taxes as follows (in thousands):


	Year Ended December 31,
	2025						2024
	Amount			Percent			Amount			Percent
Statutory federal income tax rate of 21 percent applied to loss before income taxes	$	(3,524	)		21.0	%	$	(3,032	)		21.0	%
Nontaxable or nondeductible items:
Stock-based compensation		45			(0.3	)%		371			(2.6	)%
Executive compensation		429			(2.6	)%		12			(0.1	)%
Other permanent differences		32			(0.2	)%		1			(0.0	)%
Expiration of tax attributes		583			(3.5	)%		184			(1.3	)%
Adjustment to deferred tax balances		4,397			(26.2	)%		—			0.0	%
Other		50			(0.3	)%		(49	)		0.3	%
Valuation allowance		(2,012	)		12.0	%		2,513			(17.4	)%
	$	—			0	%	$	—			0	%

Deferred income tax assets and liabilities arising from differences between accounting for financial statement purposes and tax purposes, less valuation reserves at year end are as follows (in thousands):


	Year Ended December 31,
	2025			2024
Deferred tax assets:
Accrued expenses	$	195		$	122
Depreciation		177			82
Lease liability		—			25
Net operating loss carryforwards		20,737			27,383
Stock compensation		1,822			1,216
Capitalized research and development costs		4,454			3,771
Total deferred tax assets		27,385			32,599
Deferred tax liabilities:
Operating right-of-use asset		—			23
Prepaid expense		99			108
Total deferred tax liabilities		99			131

Net deferred tax asset		27,286			32,468
Valuation allowance		(27,286	)		(32,468	)
Net deferred taxes	$	—		$	—

Deferred tax assets and liabilities are recognized for temporary differences and unused tax losses to the extent that realization of the related tax benefits is more-likely-than-not. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods when the deferred tax assets become deductible. After considering the history of operating losses and uncertainty regarding its ability to generate positive pre-tax income in 2026 and beyond, the Company has concluded that it is not-more-likely-than-not that its deferred tax assets will be realized, and therefore maintains a full valuation allowance on all deferred tax assets.

The valuation allowance decreased $5.2 million during the year ended December 31, 2025 and increased $3.5 million during the year ended December 31, 2024.

As of December 31, 2025, the Company had federal net operating loss ("NOL") carryforwards of approximately $93.8 million and state NOL carryforwards of approximately $14.9 million. Of the total amount of federal NOL carryforwards, approximately $85.8 million arose in tax years beginning after December 31, 2017 and will carry forward indefinitely. The federal NOL carryforwards arising in tax years beginning before January 1, 2018 of approximately $8.0 million will begin to expire in 2026 unless previously utilized. The Company’s state NOL carryforwards as of December 31, 2025 may be carried forward for 20 years, and will begin to expire in 2027.

Pursuant to the provisions of the Internal Revenue Code ("IRC"), the Company’s NOL and tax credit carryforwards and certain other attributes are subject to review and possible adjustment by the Internal Revenue Service ("IRS") and state tax authorities. NOL and tax credit carryforwards may be subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the IRC, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. Further, when there are multiple ownership changes, all resulting limitations must be applied to the attributes that existed prior to the ownership change. Since its inception, the Company has completed the Seneca Merger and several equity offerings, including the October 2025 Offering, which may have resulted in a change in control as defined by Sections 382 and 383 of the IRC, or could result in a change in control in the future. The Company has not performed a complete IRC Section 382 and 383 analysis for all relevant tax years regarding the limitation of net operating losses. Although the NOL deferred tax asset does reflect the limitation resulting from both the Seneca Merger and the October 2025 Offering, there could be further limitations due to prior changes in control. Due to the existence of a full valuation allowance, however, changes in the NOLs included as deferred tax assets on the Company’s consolidated balance sheets would have no impact on the Company's effective tax rate.

The Company files income tax returns in the U.S. federal jurisdiction and California. Because of the NOLs, the Company is subject to U.S. federal examinations for tax years 2007 and forward, and for examinations from state taxing authorities for tax years 2008 and forward.

The Company accounts for taxation under ASC 740, which clarifies the accounting for uncertain tax positions. ASC 740 requires that the Company recognize the impact of a tax position in its consolidated financial statements if the position is more-likely-than-not to be sustained upon examination based on the technical merits of the position. The Company did not have any uncertain income tax positions as of December 31, 2025 and 2024.

ASC 740 requires the Company to accrue interest and penalties where there is an underpayment of taxes based on the Company's best estimate of the amount to ultimately be paid. The Company identified no unrecorded material uncertain tax positions as of December 31, 2025 and 2024, consequently no interest or penalties have been accrued by the Company in either period. The Company does not anticipate a significant change to its unrecognized tax benefits within the next 12 months.

- Definition

The entire disclosure for income tax.

+ References

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+ Details

PALISADE BIO, INC. 10-K