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

INCOME TAXES

v3.26.1
INCOME TAXES
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 10 – INCOME TAXES

 

The reconciliation of the effective income tax rate to the federal statutory rate is as follows:

 

    2025     2024  
    Years Ended December 31,  
    2025     2024  
Federal income tax rate     (21 )%     (21 )%
State tax, net of federal benefit     (7 )%     (7 )%
Valuation allowance     28 %     28 %
Effective income tax rate     - %     - %

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2025 and 2024 are as follows (in thousands):

 

    December 31, 2025     December 31, 2024  
Deferred tax assets:                
Inventory valuation   $ 1,283     $ 1,300  
Accrued liabilities     262       243  
Capitalized R&D     430       463  
Operating lease liability     133       520  
Net operating loss carryforwards     5,749       6,233  
Gross deferred tax assets     7,857       8,759  
Valuation allowance     (7,818 )     (8,250 )
Total deferred tax assets     39       509  
Deferred tax liabilities:                
Operating lease right-of-use asset, net     (39 )     (461 )
Depreciation    

—

       (48 )
Total deferred tax liabilities     (39 )     (509 )
Net deferred tax asset (liability)   $ -     $ -  

 

At December 31, 2025, the Company had available Federal and state NOLs carryforwards to reduce future taxable income of approximately $27.5 million and $37.3 million, respectively. The Federal NOL can be carried forward indefinitely but can only offset 80% of taxable income in future years. The state carryforward expires in 2041 through 2044.

 

 

Authoritative guidance issued by the ASC Topic 740 – Income Taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company considers all evidence available when determining whether deferred tax assets are more likely-than-not to be realized, including projected future taxable income, scheduled reversals of deferred tax liabilities, prudent tax planning strategies, and recent financial operations. The evaluation of this evidence requires significant judgement about the forecast of future taxable income is consistent with the plans and estimates we are using to manage the underlying business. Based on their evaluation, the Company determined that their net deferred tax assets do not meet the requirements to be realized, and as such, the Company has provided a full valuation allowance against them.

 

The Company follows FASB guidelines that address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. This guidance also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At December 31, 2025 and 2024, the Company did not have a liability for unrecognized tax benefits, and no adjustment was required at adoption.

 

The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company is subject to U.S. federal or state income tax examinations by tax authorities for tax years after 2020.

 

The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2025 and 2024, the Company had no accrued interest or penalties related to uncertain tax positions. Additionally, tax years 2020 through 2025 remain open to examination by the major taxing jurisdictions to which the Company is subject.