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INCOME TAXES
 6 Months Ended
Jun. 30, 2026
INCOME TAXES  
INCOME TAXES
NOTE 8 – INCOME TAXES
 
The Company accounts for income taxes in accordance with Accounting Standards Codification ("ASC") 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for net operating loss carryforwards. Deferred tax assets are measured using enacted tax rates expected to apply in the periods in which the assets are expected to be realized.
 
Management evaluates the realizability of deferred tax assets at each reporting date based on all available positive and negative evidence. In accordance with ASC 740, greater weight is given to objectively verifiable evidence than to subjective evidence or projections.
 
As of June 30, 2026, management concluded that sufficient objectively verifiable positive evidence exists to support the realization of the Company’s deferred tax assets and that a valuation allowance is no longer required.
 
Management's conclusion is based upon the following factors:
 
The Company has generated forty-two consecutive months of taxable income, which management considered objective positive evidence in evaluating the realizability of its deferred tax assets.
 
During the six months ended June 30, 2026, the Company generated taxable income and utilized a portion of its federal and state net operating loss carryforwards. Management believes the utilization of these tax attributes provides objective evidence that the deferred tax assets are being realized through current taxable earnings rather than relying solely on future projections.
 
The Company generated positive cash flows from operating activities during the six months ended June 30, 2026, which management considered positive evidence.
 
As of June 30, 2026, the Company had positive working capital and stockholders’ equity, which management considered additional positive evidence.
 
Management also considered the Company’s recent improvements in revenue, gross profit, gross margin, and operating income.
 
Management also considered the nature of certain non-cash expenses recognized during the evaluation period. During the six months ended June 30, 2026, the Company recognized
non-cash, restricted stock
compensation expense in accordance with ASC 718. These non-cash charges did not require the expenditure of cash, did not reduce the Company’s liquidity, did not impair its ability to satisfy operating obligations, purchase inventory, invest in growth initiatives, or generate future taxable income. Management considered the non-cash nature of these charges in evaluating the positive and negative evidence regarding the realizability of the Company’s deferred tax assets.
 




The
Company’s
remaining federal and state net operating loss carryforwards have substantial remaining statutory lives before expiration. Based upon the
Company’s
demonstrated operating performance and current financial condition, management believes sufficient future taxable income will be generated to fully utilize these tax attributes before expiration.
 
Management also considered the Company’s cumulative historical losses as significant negative evidence. After weighing this negative evidence against the Company’s recent profitability, taxable income, utilization of net operating loss carryforwards, positive operating cash flows, and improved financial position, management concluded that it is more likely than not that the deferred tax assets will be realized.
 
After weighing all available positive and negative evidence in accordance with ASC 740, management concluded that sufficient objectively verifiable positive evidence exists to overcome the significant negative evidence represented by cumulative historical losses. Accordingly, management determined that it is more likely than not that the Company’s deferred tax assets will be fully realized before expiration.
 
Accordingly, effective June 30, 2026, the Company released its valuation allowance in full and recognized its deferred tax assets in accordance with ASC 740.
 
Management will continue to evaluate the realizability of deferred tax assets at each reporting date based on all available evidence and will adjust its conclusions prospectively should future facts and circumstances warrant.
 
The following table presents the activity in the Company’s Net Operating Loss Carryforward and Deferred Tax Assets for the six months ended June 30, 2026 and 2025:

 
 
 
 
2026
 
 
2025
 
Net Operating Loss Carryforward, January 1
 
 
$
3,062,416
 
 
$
3,549,884
 
Taxable Income, January 1 to June 30
 
 
 
507,146
 
 
 
241,435
 
Net Operating Loss Carryforward, June 30
 
 
$
2,555,270
 
 
$
3,308,449
 
Gross
Federal Deferred Tax Asset, January 1
 
 
 
643,108
 
 
 
745,476
 
Federal Tax Expense as of June 30 (21% Tax Rate)
 
 
 
(106,501
)
 
 
(50,701
)
Gross
Federal Deferred Tax Asset, June 30
 
 
$
536,607
 
 
$
694,775
 
State of New Jersey Deferred Tax Asset, January 1
 
 
 
275,033
 
 
 
318,681
 
State of New Jersey Tax Expense as of June 30 (9% Tax Rate)
 
 
 
(45,643
)
 
 
(21,729
)
State of New Jersey Deferred Tax Asset, June 30
 
 
$
229,390
 
 
$
296,952
 
Total Deferred Tax Asset, June 30
 
 
$
765,997
 
 
$
991,727
 
Valuation Allowance
 
 
 

-

 
 

(991,727
)
Total Deferred Tax Asset, Net Allowance
 
 
$
 
765,997
 
 
$
-
 
Total Tax Expense
 
 
$
152,144
 
 
$
72,430
 
Tax Shield Applied:
 
 
 
 
 
 
 
 
 
 
Federal Tax as of June 30 (21% Tax Rate)
 
 
 
(106,501
)
 
 
(50,701
)
State of New Jersey Tax as of June 30 (9% Tax Rate; limited to 80% NOL utilization)
 
 
 
(36,514
)
 
 
(17,384
)
Total Tax Shield Applied
 
 
$
(143,015
)
 
$
(68,085
)
Income Tax Expense
 
 
$
 
9,129
 
 
$
4,345
 
 
The table below shows the reconciliation of Net Income per Books to Taxable Income:
 
 
 
2026
 
 
2025
 
Net Income before Taxes
 
$
418,946
 
 
$
241,435
 
Stock Awards
 
 
88,200
 
 
 
-
 
Taxable Net Income
 
$
507,146
 
 
$
241,435
 

The release of the valuation allowance resulted in the recognition of a deferred income tax benefit of
$765,997
during the six months ended June 30, 2026. After recognizing current income tax expense of
$9,129
,
the Company recorded a net income tax benefit of
$756,868
 
for the six-month period.