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

14. INCOME TAXES

 

The following is a geographical breakdown of loss before the provision for income tax, for the years ended December 31, 2025, and 2024.

               
    2025     2024  
Pre-tax loss            
U.S. Federal   $ (2,111,000 )   $ (3,968,000 )
Foreign     -       -  
Total   $ (2,111,000 )   $ (3,968,000 )

 

The federal and state income tax (provision) benefit is summarized as:

               
    2025     2024  
Current            
U.S. Federal   $ -     $ -  
U.S. State     2,000       5,000  
Foreign     -       -  
Total current provision     2,000       5,000  
Deferred                
U.S. Federal     -       -  
U.S. State             -  
Foreign     -       -  
Total deferred provision (benefit)     -       -  
Total provision (benefit) for income taxes   $ 2,000     $ 5,000  

 

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes and (b) operating losses and tax credit carryforwards. Significant components of the Company’s deferred taxes as of December 31 were as follows:

               
    2025     2024  
Deferred tax asset:                
Net operating loss   $ 7,829,000     $ 7,396,000  
Intangible asset basis     99,000       113,000  
Deferred rent liability     14,000       177,000  
Inventory adjustments     380,000       375,000  
R&D capitalization     70,000       102,000  
Asset retirement obligation     8,000       7,000  
Settlement liability     298,000       298,000  
Accrued warranty     13,000       13,000  
Accrued salaries     90,000       69,000  
Deferred revenue     75,000       35,000  
    Accrued interest     281,000       122,000  
    Change in fair value of derivatives     10,000       -  
Total deferred tax asset     9,167,000       8,707,000  
                 
Deferred tax liability:            
ROU assets     (8,000)       (159,000 )
Fixed asset basis      (13,000)       (90,000 )
Total deferred income tax liabilities     (21,000)       (249,000 )
Net deferred income tax assets     9,146,000       8,458,000  
Valuation allowance     (9,146,000)       (8,458,000 )
Deferred tax asset (liability), net   $ -     $ -  

 

Events which may restrict utilization of a company’s net operating loss and credit carryforwards include, but are not limited to, certain ownership change limitations as defined in Internal Revenue Code Section 382 and similar state provisions. In the event the Company has had a change of ownership, utilization of carryforwards could be restricted to an annual limitation. The annual limitation may result in the expiration of net operating loss carryforwards before utilization. The Company has not undertaken a study to determine if its net operating losses are limited. In the event the Company previously experienced an ownership change, or should experience an ownership change in the future, the amount of net operating loss carryovers available in any taxable year could be limited and may expire unutilized. The impact of any such limitations or expirations would not have a material impact on the financials since all the deferred tax assets for the Company’s attributes are fully offset by a valuation allowance.

 

ASC 740 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. Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.

 

The valuation allowance increased by $688,000, and $929,000 during the years ended December 31, 2025, and 2024, respectively. Net operating losses and tax credit carryforwards as of December 31, 2025, and 2024 were as follows:

           
    2025 Amount     Expiration Years
Net operating losses, federal (Post December 31, 2017)   $ 19,189,000     Do Not Expire
Net operating losses, federal (Pre-January 1, 2018)     8,058,000     2026 to 2037
Net operating losses, state     30,180,000     2029 to 2044

 

    2024 Amount     Expiration Years
Net operating losses, federal (Post December 31, 2017)   $ 16,415,000     Do Not Expire
Net operating losses, federal (Pre-January 1, 2018)     9,263,000     2025 to 2037
Net operating losses, state     28,697,000     2029 to 2043

 

The effective tax rate of the Company’s provision (benefit) for income taxes as of December 31, differed from the federal statutory rate as follows:

                    
   2025   2024 
Tax computed at the federal statutory rate  $(443,000)   21.00%  $(772,000)   21.00%
State and local income tax (net of FBOS)   41,000    -1.94%   72,000    -1.97%
Change in Valuation Allowance   466,000    -22.09%   553,000    -15.04%
Nontaxable or nondeductible items   1,000    -0.09%   3,000    -0.05%
NOL Expiration   -    0.00%   190,000    -5.17%
Prior Year True-Up   (63,000)   3.00%   (41,000)   1.11%
Total  $2,000    -0.11%  $5,000    -0.13%

 

The Company’s statute of limitations remains open for various taxable years in various U.S. federal and California jurisdictions.

 

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted, restoring the immediate deductibility of domestic Section 174 research and experimental expenditures for tax years beginning in 2025 and reinstating 100% bonus depreciation. The Company evaluated the impact of the legislation and determined it does not have a material effect on its consolidated financial statements. The Company elected to continue amortizing Section 174 costs capitalized in 2022 through 2024 over their remaining amortization periods rather than taking a full deduction in 2025.