13.     INCOME TAXES

The ASU standardizes categories for the effective tax rate reconciliation, requires disaggregation of income taxes paid and additional income tax-related disclosures, and is effective for the Company for annual fiscal periods beginning after December 15, 2024. The Company has adopted ASU 2023-09 for the 2025 calendar year retrospectively. Because the ASU affects disclosures only, the adoption did not affect the Company’s Consolidated Statements of Operations or Consolidated Balance Sheets.

The income tax provision (benefit) on the statements of operations was comprised of the following for the years ended December 31:

For the years ended December 31, 2025 and 2024, the reconciliation of the federal statutory tax rate to the benefit rate for income taxes is as follows:

Deferred tax assets and liabilities are comprised of the following at December 31:

As of December 31, 2025, the Company has gross Federal net operating loss carryforwards of $5.1 million, gross state net operating loss carryforwards of $2.0 million, and gross Mexico net operating loss carryforwards of approximately $86,000. The Company's Federal net operating losses can be carried forward indefinitely. The Company's state net operating losses have 15 years to indefinite carryforward periods and begin to expire in 2035. The Company's Mexico net operating losses have 10-year carryforward periods and begin to expire in 2032.

Pursuant to Sections 382 and 383 of the Internal Revenue Code ("IRC"), Federal and state tax laws impose significant restrictions on the utilization of net operating loss and other tax carryforwards in the event of a change in ownership of the Company. The Company does not expect IRC Sections 382 and 383 to significantly impact on the utilization of its net operating losses and other tax carryforwards.

Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The Company continues to maintain a valuation allowance on its Mexico net operating losses. The Company's valuation allowance represents the amount of tax benefits that are likely to not be realized. The net change in the valuation allowance from December 31, 2024 was approximately $6,000.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

As of December 31, 2025 and 2024, the Company has no accrual for interest and penalties related to its unrecognized tax benefits. The balance of the unrecognized tax benefits as of December 31, 2025 are included in the deferred tax asset, net. Included in the balance of unrecognized tax benefits at December 31, 2025 is $634,971 of tax benefits that, if recognized would impact the effective tax rate. There are no positions for which it is reasonably possible that the uncertain tax benefit will significantly increase or decrease within twelve months. The Company files income tax returns in the United States and various state jurisdictions. Beginning in 2022, the Company also files income tax returns in Mexico. With the exception of tax attributes created in prior years that may potentially be adjusted, the federal statute of limitations remains open for the 2020 tax year to present, the state statutes of limitations remain open for the 2020 tax year to present, and the foreign statute of limitations remains open for the 2022 tax year to present.

Income taxes paid (net of refunds received) for the year ended December 31:

Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law in 2020 and the subsequent extension of the CARES Act through September 30, 2021, the Company was eligible for a refundable employee retention credit subject to certain criteria. The Company has elected an accounting policy to recognize the government assistance when it is probable that the Company is eligible to receive the assistance and present the credit as a reduction of the related expense. During the years ended December 31, 2025 and 2024, the Company recorded $248,236 and $0, respectively, related to the employee retention credit included as a reduction of payroll expense within selling, general and administrative expenses in the consolidated statements of operations. As of December 31, 2025 and 2024 the Company has filed for refunds and recorded $345,228 and $1,129,164, respectively, in other receivables on the consolidated balance sheet.