We account for income taxes in accordance with ASC 740 Income Taxes. ASC 740 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected tax consequences or events that have been recognized in our consolidated financial statements or tax returns. ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in the consolidated financial statements. The interpretation prescribes a recognition threshold and measurement attribute for the consolidated financial statements recognition and measurement of a tax position taken, or expected to be taken, in a tax return.

The Company files income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. The Company generally is no longer subject to U.S. or state examinations by tax authorities for taxable years prior to 2021. However, net operating losses utilized from prior years in subsequent years’ tax returns are subject to examination until three years after the filing of subsequent years’ tax returns.

The provision (benefit) for income taxes consists of the following:

The difference between the income tax provision (benefit) computed at the federal statutory rate and the actual tax benefit for 2025 after the adoption of ASU 2023-09 is as follows:

A reconciliation of the difference between the provision for income taxes and the expected tax provision as presented in 2024 prior to the adoption of ASU 2023-09 is as follows: 

In accordance with the adoption of ASU 2023-09, below is a summary of income taxes paid, net of refunds received, by jurisdiction for the year ended December 31, 2025;

The components of deferred income tax assets and liabilities are as follows at December 31:

As of December 31, 2025, the Company had approximately $68,200,000 of gross net operating loss carryforwards (“NOLs”) for federal tax purposes and approximately $18,300,000 of post apportionment NOLs for state tax purposes. The Federal NOLs begin to expire in 2034. Losses generated in 2018 and forward of $16,700,000 have an indefinite life and can offset up to 80% of taxable income in the future. Federal NOLs generated prior to 2018 can offset 100% of future taxable income. The state NOLs begin to expire in 2034 .

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

The Company will recognize a tax liability in the consolidated financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50%) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes.

The Company classifies interest relating to tax matters and tax penalties as a component of income tax expense in its Consolidated Statements of Operations. As of December 31, 2025, there were $130,000 of unrecognized tax benefits that, if recognized, $103,000 would affect the effective tax rate. Related to the unrecognized tax benefits, the Company accrued interest and penalties of $13,000 and $0, respectively, during the years ended December 31, 2025 and 2024. 

Assessing the realizability of deferred tax assets requires the determination of whether it is more likely than not that some portion or all the deferred tax assets will not be realized. In assessing the need for a valuation allowance, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, loss carryback and tax-planning strategies. Generally, more weight is given to objectively verifiable evidence, such as a cumulative loss in recent years, as a significant piece of negative evidence to overcome. As of December 31, 2025, the Company reported three years of cumulative book income, along with projections of profitability, for which management determined that there is sufficient positive evidence to conclude that it is more likely than not that a portion of the deferred tax assets will be realized. As such, $292,183 of the valuation allowance has been released, leaving an ending valuation allowance balance of $681,184 against federal R&D credits and state NOLs.