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INCOME TAXES
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES

 

14. INCOME TAXES

 

There was no Federal income tax expense for the years ended December 31, 2024 and 2023 due to the Company’s net losses. Income tax expense represents the minimum state taxes due.

 

 

The provision for income taxes consists of the following:

 

          
   2024   2023 
Current:          
Federal   –    – 
State   13,922    14,240 
Foreign   199,522    – 
Subtotal   213,444    14,240 
Deferred:          
Federal   –    – 
State   –    – 
Foreign   (307,101)   – 
Subtotal   (307,101)   – 
Cushion          
Net provision (benefit)   (93,657)   14,240 

  

The pretax loss by country is shown below (in thousands):

        
   Year Ended December 31, 
   2024   2023 
           
United States  $(10,537)  $(15,682)
International  $(839)  $(366)

 

The blended Federal and State tax rate of 27.31% applies to loss before taxes. The Company’s tax expense differs from the “expected” tax expense for Federal income tax purposes, (computed by applying the United States Federal tax rate of 21% to loss before taxes), as follows (in thousands):

        
   Year Ended December 31, 
   2024   2023 
Computed “expected” tax expense (benefit)  $(2,389)  $(3,370)
State taxes, net of federal benefit   (761)   (933)
Change in FV of Contingent Consideration   (982)   – 
Non-deductible stock options   336    14 
Non-deductible items   11    48 
Foreign tax rate differential   69    22 
True-up to tax return   210    70 
Change in deferred tax asset valuation allowance   3,412    4,161 
Total  $(94)  $12 

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities are as follows (in thousands):

        
   Year Ended December 31, 
   2024   2023 
Deferred tax assets:          
Stock options  $1,081   $1,115 
Deferred Revenue   151    147 
Capitalized R&D   828    286 
Patents/Intangible Assets   1,424    1,598 
Lease Liability   456    297 
Other   310    287 
Net operating loss carryforward   22,167    19,035 
Total gross deferred tax assets   26,417    22,765 
Less: Deferred tax asset valuation allowance   (25,913)   (22,500)
Total net deferred tax assets   504    265 
           
Deferred tax liabilities:          
ROU Asset   (442)   (283)
Depreciation   (1,352)   (1,680)
Total deferred tax liabilities   (1,794)   (1,963)
           
Total net deferred taxes  $(1,290)  $(1,698)

 

As a result of the Company’s history of incurring operating losses, a full valuation allowance has been established. The valuation allowance at December 31, 2024 was $25.9 million. The increase in the valuation allowance during 2024 was $3.4 million which was all recorded through deferred taxes.

 

At December 31, 2024, the Company has a Federal net operating loss carry forward of $79.0 million, of which $25.1 million is available to offset future net income through 2037, a State net operating loss carry forward of $84.7 million. The net operating loss (“NOL”) expires during the years 2027 to 2037 and $53.9 million may be carried forward indefinitely and limited to offsetting 80% of taxable income. The utilization of the net operating loss carryforwards is dependent upon the ability of the Company to generate sufficient taxable income during the carryforward period. In the event that a significant change in ownership of the Company occurs as a result of the Company’s issuance of common stock, the utilization of the NOL carry forward will be subject to limitation under certain provisions of the Internal Revenue Code. Management does not presently believe that such a change has occurred.

 

No liability related to uncertain tax positions is recorded on the financial statements related to uncertain tax positions. There are no unrecognized tax benefits as of December 31, 2024. The Company does not expect that uncertain tax benefits will materially change in the next 12 months.

 

The Company will file U.S. Federal, California, Illinois, Michigan, New York, Tennessee, Texas and Wisconsin State tax returns, and a New York City tax return. All tax returns will remain open for examination by the Federal and State taxing authorities for three and four years, respectively, from the date of utilization of any net operating loss carryforwards. No additional provision has been made for U.S. income taxes related to undistributed foreign earnings of the Company’s wholly owned Serbian subsidiary or for unrecognized deferred tax liabilities for temporary differences related to investments in subsidiaries. As such, earnings are expected to be permanently reinvested, the investments are permanent in duration, or the Company has estimated that no additional tax liability will arise as a result of the distribution of such earnings. A liability could arise if amounts are distributed by the subsidiary or if the subsidiary is ultimately disposed of. It is not practical to estimate the additional income taxes, if any, related to permanently reinvested earnings. There are no unremitted earnings as of December 31, 2024.