NOTE 16. INCOME TAXES.

Income taxes are accounted for using the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities and for net operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply when the related temporary differences reverse. A valuation allowance is recorded when, based on the weight of available evidence, it is more likely than not that some or all of a deferred tax asset will not be realized.

Effective July 1, 2025, the Company adopted ASU 2023-09 on a prospective basis. The adoption affected income tax disclosures and did not affect the Company’s consolidated financial position, results of operations or cash flows.

Income (Loss) Before Income Taxes

Income (loss) from continuing operations before income taxes was attributable entirely to domestic operations. The Company had no foreign income or loss from continuing operations during the years ended June 30, 2026 and 2025.

Income Tax Expense

The components of income tax expense attributable to continuing operations were as follows:

For the year ended June 30, 2026, income tax expense was approximately $573,000 attributable to U.S. federal income taxes and $101,000 attributable to state and local income taxes. There was no foreign income tax expense. There was no current income tax provision for the years ended June 30, 2026 or 2025.

Effective Income Tax Rate Reconciliation

For the year ended June 30, 2026, the difference between income tax expense computed at the U.S. federal statutory income tax rate and the Company’s reported income tax expense was as follows:

The state and local income tax category is principally attributable to Georgia. The Company is also subject to income tax in Florida; Florida did not have a material effect on the income tax provision for the periods presented.

The effective income tax rate for fiscal 2026 differed significantly from the U.S. federal statutory rate primarily as a result of changes in the valuation allowance and a prior-period deferred tax adjustment associated principally with right-of-use assets and property and equipment.

Because ASU 2023-09 was adopted prospectively, the fiscal 2025 rate reconciliation is presented under the disclosure requirements applicable prior to adoption:

Deferred Income Taxes

The tax effects of significant temporary differences and carryforwards giving rise to deferred tax assets and liabilities were as follows:

The Company maintained a full valuation allowance against its gross deferred tax assets at June 30, 2026 and 2025. In assessing the realizability of deferred tax assets, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and available tax planning strategies. Based on the weight of available positive and negative evidence, the Company concluded that realization of its deferred tax assets was not more likely than not. “

During fiscal 2026, the Company recorded a priorperiod deferred tax adjustment associated principally with right-of-use assets and property and equipment. The adjustment related to deferred tax liabilities that had not been fully recorded in the prior period and was determined to be immaterial to the previously issued and current-period financial statements.

Net Operating Loss Carryforwards

As of June 30, 2026, the Company had federal net operating loss carryforwards of approximately $3.9 million available to offset future taxable income, subject to applicable limitations. Federal net operating losses generated in taxable years beginning after December 31, 2017 generally may be carried forward indefinitely, subject to limitations on the amount of taxable income that may be offset in a taxable year. Utilization of the Company’s net operating loss carryforwards may be subject to annual limitations under Section 382 of the Internal Revenue Code and similar state provisions if the Company experiences an ownership change, as defined under applicable tax law. The Company has not completed a formal analysis to determine whether an ownership change under Section 382 has occurred. Because the Company’s deferred tax assets are fully offset by a valuation allowance, any limitation would not currently affect the net deferred tax asset recognized in the consolidated financial statements.

Unrecognized Tax Benefits and Tax Examinations

The Company recognizes the financial statement effects of an uncertain tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. A recognized tax benefit is measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. Interest and penalties related to uncertain tax positions are recognized as a component of income tax expense.

The Company had no material unrecognized tax benefits as of June 30, 2026 or 2025.

On November 27, 2023, the Company received a notice from the Internal Revenue Service asserting taxes and penalties of approximately $125,000. The Company recorded a reserve of approximately $44,000 for expected interest and penalties after considering available net operating losses and tax credits.

On January 22, 2024, the Company received a notice from the Georgia Department of Revenue asserting taxes and penalties of approximately $104,000. The Company recorded a reserve of approximately $6,000 for expected interest and penalties after considering available net operating losses and tax credits. As of June 30, 2026, the Georgia Department of Revenue had accepted the related amended returns and supporting documentation, and no taxes, penalties or interest were due. Accordingly, the Company reversed the $6,000 reserve during June 2026. In total, the Company reversed approximately $44,000 of previously accrued reserves during fiscal 2026, which is presented as a reversal of prior tax accrual in the income tax expense components above and in the consolidated statements of cash flows.

The Company is subject to examination by the Internal Revenue Service and applicable state taxing authorities. The Company’s federal and state income tax returns for fiscal years 2023 through 2026 remain open to examination.

Income Taxes Paid

Income taxes paid, net of refunds received, for the year ended June 30, 2026 were as follows:

The state and local amount represents a refund received from the State of Georgia. The Company made no material income tax payments during fiscal 2026 and had no foreign income