NOTE 14. INCOME TAXES

The following table summarizes the loss from continuing operations before income taxes (in thousands):

 SUMMARY OF (LOSS) INCOME BEFORE INCOME TAXES

Income Tax Provision

The composition of the benefit from income taxes consisted of the following (in thousands):

 SCHEDULE OF BENEFIT FROM (PROVISION FOR) INCOME TAXES

Tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets for the years ended June 30, 2026 and 2025 are presented below (in thousands):

 SCHEDULE OF DEFERRED TAX ASSETS

The Company’s accounting for deferred income taxes requires evaluating the realizability of its net deferred tax assets. In assessing recoverability, the Company considers all available positive and negative evidence, including historical operating performance, the nature of the deferred tax assets, and the timing, likelihood, and amount of future taxable income during the periods when temporary differences and carryforwards become deductible. Based on this evaluation, the Company established a partial valuation allowance against certain net deferred tax assets as of June 30, 2026. The valuation allowance increased by $0.4 million during the fiscal year ended June 30, 2026. No valuation allowance was recorded as of June 30, 2025, because the Company determined at that time that it was more likely than not that its net deferred tax assets would be realized.

For the year ended June 30, 2026, the Company adopted ASU 2023-09 prospectively. See Note 2. Summary of Significant Accounting Policies - Recent Accounting Pronouncements for additional details on the adoption of ASU 2023-09. A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rate pursuant to the disclosure requirements of ASU 2023-09 for the year ended June 30, 2026 was as follows:

 SCHEDULE OF INCOME TAX BENEFIT EXPENSE

The benefit from income taxes for the year ended June 30, 2025, prior to the adoption of ASU 2023-09, differed from the amounts computed by applying the statutory federal income tax rate of 21.0% to pretax loss as a result of the following (in thousands):

Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. As of June 30, 2025, the balance of gross unrecognized tax benefits was zero, and it remained zero throughout the year ended June 30, 2026.

As of June 30, 2026 and 2025, the Company has federal net operating loss carryforwards of $10.4 million and $9.4 million, respectively, and state net operating loss carryforwards of $4.3 million and $6.9 million, respectively. These state operating loss carryforwards begin to expire in 2045. The federal net operating loss carryforward will carryforward indefinitely, but is subject to the 80% taxable income limitation.

The Company files income tax returns in the United States, and various state and foreign jurisdictions. The federal, state and foreign income tax returns are subject to tax examinations for the tax years 2021 through 2025 as of year ended June 30, 2026. To the extent the Company has tax attribute carry forwards, the tax years in which the attribute was generated may still be adjusted upon examination by the U.S. Internal Revenue Service, state or foreign tax authorities to the extent utilized in a future period. There were no ongoing examinations by taxing authorities as of June 30, 2026.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2026 and 2025, the Company accrued and recognized as a liability zero, respectively, of interest and related penalties to uncertain tax positions.

Congress enacted the One Big Beautiful Bill Act (“OBBBA”), which was signed into law on July 4, 2025. This law changes or makes permanent certain tax laws for corporations, including provisions relating to domestic research and development costs, bonus depreciation and foreign derived intangible income.