INCOME TAXES |
9 Months Ended |
|---|---|
Sep. 30, 2026 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | NOTE 10— INCOME TAXES
The Company’s quarterly provision for income taxes is measured using an annual effective tax rate, adjusted for discrete items within the period presented. To determine the annual effective tax rate, the Company estimates both the total income (loss) before income taxes for the full year and the jurisdictions in which that income (loss) is subject to tax. The actual effective tax rate for the full year may differ from these estimates if income (loss) before income taxes is greater than or less than what was estimated or if the allocation of income (loss) to jurisdictions in which it is taxed is different from the estimated allocations.
For the nine months ended September 30, 2026 and September 30, 2025, the Company recognized a net income tax benefit of $650,000 and net income tax expense of $331,000, respectively. The effective tax rate for the nine months ended September 30, 2026 and September 30, 2025 was (124.3%) and 18.4%, respectively. For the three months ended September 30, 2026 and September 30, 2025, the Company recognized income tax benefits of $730,000 and $65,000, respectively. The effective tax rate for the three months ended September 30, 2026 and September 30, 2025 was (341.1%) and (33.7%), respectively. The Company’s effective tax rate differed from the U.S. federal statutory rate of 21% primarily due to a discrete tax benefit of approximately $780,000 from a partial release of the valuation allowance on the Company’s deferred tax assets, as well as state income taxes. The Company recognized an income tax benefit despite positive pretax income due to the discrete valuation allowance release exceeding the income tax expense on ordinary income for the period.
The Company’s current position is to elect under Section 59(e) of the Internal Revenue Code to amortize its domestic research and experimental expenditures over a longer recovery period. This lowers the Company’s annual tax amortization of these costs and increases its projected taxable income in the near term. In addition, the Company’s updated forecasts reflect higher expected future earnings due to the recent acquisition. As a result, the Company now expects to use certain federal net operating loss carryforwards that were previously expected to expire unused. Based on this positive evidence, the Company concluded that it is more likely than not that approximately $780,000 of the related net operating loss deferred tax assets will be realized, and released the corresponding valuation allowance as a discrete item in the period. The Company continues to maintain a valuation allowance of $9,546,000 against deferred tax assets whose realization remains uncertain. The Company did not have any unrecognized tax benefits as of September 30, 2026 or December 31, 2025.
The Company files a consolidated U.S. income tax return and tax returns in certain state and local jurisdictions. As of September 30, 2026, the Company is no longer subject to federal examination for years before 2022, or for years before 2021 for state income taxes. However, our tax attribute carryforwards from closed tax years may be subject to examination to the extent utilized in an open tax year. The Company does not expect that our unrecognized tax benefits will change within the next twelve months due to statute of limitation lapses.
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