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 Taxes [Abstract]  
Income Taxes NOTE 12 - INCOME TAXES

Income tax expense from continuing operations consists of the following:

Year Ended December 31

2025

2024

Current year income taxes :

State

51,140

76,398

51,140

76,398

Deferred income taxes:

Federal

$

—

$

(41,579)

—

(41,579)

Income tax expense

$

51,140

$

34,819

The Company has elected to prospectively adopt the guidance in ASU No, 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures. The reconciliation of the federal statutory income tax rate to the Company's provision for income taxes for the year ended December 31, 2025 in accordance with the guidance in ASU No. 2023-09 is as follows:

Year Ended December 31, 2025

$

%

U.S. Federal Statutory Tax Rate

$

(2,276,756)

21.0%

State and Local Income Taxes, Net of Federal Income Tax Effect(1)

40,400

(0.4)

Nontaxable or Nondeductible Items:

Financing Fees

238,672

(2.2)

Fair value remeasurement of warrant liability

1,581,519

(14.6)

Fair value remeasurement of contingent forward contract

(188,807)

1.7

Other

40,815

(0.4)

Changes in Valuation Allowances

618,100

(5.7)

Changes in Unrecognized Tax Benefits

(2,803)

0.1

Other Adjustments

—

—

$

51,140

(0.5%)

(1) State taxes in New York made up the majority (greater than 50%) of the tax effect in this category.

The reconciliation of the federal statutory income tax rate to the Company’s provision for income taxes for the year ended December 31, 2024 in accordance with the guidance prior to the adoption of ASU 2023-09 is as follows:

Year Ended December 31

2024

Tax at U.S. statutory rate

21.0%

State income taxes, net of federal benefit

(3.8)

Other nondeductible items

(4.3)

Change in valuation allowance

(8.1)

Other

(5.0)

Effective tax rate

(0.2%)

The income taxes paid for the year ended December 31, 2025 consisted of the following:

State and Local Income Taxes

California

$

9,109

Massachusetts

4,200

New York

51,400

Other States

838

$

65,547

Deferred tax assets and liabilities as of December 31 related to the following:

2025

2024

Deferred tax assets:

Allowance for doubtful accounts

$

80,686

$

62,747

Inventory

112,518

98,271

Accrued and prepaid expenses

458,227

287,495

Lease liability

902,131

988,437

Domestic net operating loss carry-forward

6,701,417

6,018,361

Other stock compensation

52,924

72,613

Intangible assets

224,436

—

Foreign net operating loss carry-forwards and credits

1,910,507

1,910,507

Federal and state credits

372,642

369,839

Business interest limitation carryforward

1,993,748

1,696,118

Other

26,110

15,961

Gross deferred tax assets

12,835,346

11,520,349

Valuation allowance

(11,882,160)

(10,248,132)

Net deferred tax assets

953,186

1,272,217

Deferred tax liabilities

Depreciation

(86,429)

(109,390)

Intangible assets

—

(202,202)

Lease right-of-use asset

(866,757)

(960,625)

Net deferred tax liability

(953,186)

(1,272,217)

Total net deferred tax liability

$

—

$

—

The Company assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2025. This objective evidence limits the ability to consider other subjective evidence such as the projections for future growth. On the basis of this evaluation, as of December 31, 2025, a valuation allowance of $11,882,160 has been recorded to reflect the portion of the deferred tax asset that is more likely to not be realized. The valuation allowance increased by $1,634,028 from December 31, 2024 to December 31, 2025. The Company continues to reassess the ability to realize the valuation allowance and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded accordingly.

As of December 31, 2025, the Company had had gross federal, state and foreign net operating loss carryforwards of $27,821,873, $17,897,782 and $7,642,027, respectively. The federal net operating loss carryforwards have carryforward periods of twenty years, or that are indefinite, and begin to expire in 2029. The state net operating loss carryforwards have carryforward periods of 12-20 years, or that are indefinite and begin to expire in 2027. The foreign net operating loss carryforwards are indefinite.

Section 382 of the Internal Revenue Code limits the utilization of U.S. net operating loss carryforwards and other tax attributes following a change of ownership or failure of continuity of business. Based on our analysis under Section 382, we believe that certain tax attributes will be subject to a limitation and will not be available for future periods. Management will continue to evaluate the limitation under Section 382 and does not expect a material impact because of the valuation allowance against the net deferred tax assets.

At December 31, 2025, the Company has an estimated federal research and development credit carryforward of approximately $220,000 and a state research and development credit carryforward of approximately $193,000. The utilization of these credits may be limited under the provisions of Section 383 of the Internal Revenue Code and similar state statutes. Section 383 governs the utilization of tax attribute carryforwards such as the research and development credit in the event of a change in

control of the Company, such as that which occurred as of March 28, 2022. Credits not used to reduce taxes are available to be carried forward.

The Company assesses uncertain tax positions in accordance with ASC 740. Under this method, the Company must 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 these uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense.

Changes in the Company’s uncertain tax positions are summarized as follows:

2025

2024

Uncertain tax positions – January 1

$

35,468

$

43,028

Expiration of statute of limitations

(2,803)

(7,560)

Uncertain tax positions – December 31

$

32,665

$

35,468

Included in the balance of uncertain tax positions at December 31, 2025 are $32,665 of tax benefits that if recognized would affect the tax rate. The Company’s income tax liability accounts included accruals for interest and penalties of $0 at December 31, 2025. The Company’s 2025 income tax expense decreased by $0 due to net decreases for accrued interest and penalties.

The Company is subject to taxation by the United States, foreign and state and local jurisdictions. In general, the Company’s tax years 2019 through 2025 remain open to assessment.

On July 4, 2025, the “One Big Beautiful Bill Act” was enacted into law. The legislation includes several changes to federal tax law including permanent extension of certain expiring Tax Cuts and Jobs Act provisions and modifications to US taxation of foreign activity. Certain provisions were effective for 2025, while others will be effective for tax years beginning after December 31, 2025. The Company has evaluated the impact of the legislation and incorporated the applicable tax provisions into its consolidated financial statements for the current reporting period.