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INCOME TAXES
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 15: INCOME TAXES

 

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for temporary differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates expected to apply in the years in which those differences are expected to reverse. The Company maintains a full valuation allowance against all net deferred tax assets due to its history of operating losses.

 

Income Tax Provision

 

For the year ended December 31, 2025, the Company recorded no current or deferred income tax expense or benefit. For the year ended December 31, 2024, the Company recorded a deferred income tax benefit of $119,044. The components of the income tax provision are as follows:

 

    2025    2024 
    Year Ended December 31, 
    2025    2024 
Current:          
Federal  $-   $- 
State (California)   -    - 
Total current   -    - 
Deferred:          
Federal   -    (119,044)
State (California)   -    - 
Total deferred   -    (119,044)
Total income tax expense (benefit)  $-   $(119,044)

 

 

Deferred Tax Assets and Liabilities

 

The Company’s deferred tax assets arise primarily from net operating loss carryforwards. The Company has recorded a full valuation allowance against its net deferred tax assets as it is not more likely than not that these assets will be realized. The following table presents deferred tax assets and liabilities as of December 31, 2025 and 2024:

 

   2025   2024 
   December 31, 
   2025   2024 
Deferred tax assets:          
Net operating loss carryforwards  $32,423,194   $24,774,064 
Total gross deferred tax assets  $32,423,194   $24,774,064 
           
Deferred tax liabilities:          
Depreciation timing differences  $(1,840,170)  $(1,840,170)
Total deferred tax liabilities  $(1,840,170)  $(1,840,170)
           
Less: valuation allowance  $(30,832,014)  $(23,182,884)
           
Net deferred tax asset (liability)  $(248,990)  $(248,990)

 

Effective Tax Rate Reconciliation

 

The Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, effective for the year ended December 31, 2025. This standard requires the effective tax rate reconciliation to be presented in tabular format using both dollar amounts and percentages, disaggregated into prescribed categories. The reconciliation from the U.S. federal statutory rate of 21% to the Company’s effective rate of 0% and 0.9%, respectively, for the years ended December 31, 2025 and 2024 is as follows:

 

   2025   %   2024   % 
Tax at federal statutory rate (21%)  $(5,933,037)   21.0%  $(2,777,383)   21.0%
Stock-based compensation   -    0.0%   47,411    -0.4%
Non-deductible items   734,704    -2.6%   1,449,317    -11.0%
Impairment of goodwill and intangibles   1,585,998    -5.6%   387,974    -2.9%
Change in valuation allowance   3,612,335    -12.8%   773,637    -5.8%
Total income tax expense (benefit)  $-    0.0%  $(119,044)   0.9%

 

Income Taxes Paid

 

The Company paid no federal, state, or local income taxes for the years ended December 31, 2025 and 2024.

 

Valuation Allowance

 

The Company maintained a full valuation allowance against its net deferred tax assets as of December 31, 2025 and 2024, due to its history of operating losses and uncertainty regarding the generation of future taxable income. The valuation allowance increased by $7,649,130 during 2025 and decreased by $5,419,573 during 2024, reflecting growth in net operating loss carryforwards.

 

Net Operating Loss Carryforwards

 

As of December 31, 2025, the Company had federal net operating loss carryforwards of approximately $108.7 million. Approximately $15.7 million relates to pre-2018 tax years and expires between 2033 and 2038. The remaining $93.7 million of post-2017 losses carry forward indefinitely but are subject to an annual 80% taxable income limitation under IRC §172. The Company also had California state NOL carryforwards of approximately $108.7 million, subject to a 20-year carryforward period.

 

The ability to utilize these carryforwards could become subject to annual limitations under Section 382 of the Internal Revenue Code if the Company undergoes an ownership change, generally defined as a cumulative shift of more than 50 percentage points in ownership among 5%-or-greater stockholders over a three-year period.

 

Uncertain Tax Positions

 

The Company has not identified any uncertain tax positions as of December 31, 2025 or 2024, and has recorded no related liabilities. The Company is subject to examination by U.S. federal and California state tax authorities for all tax years from 2021 forward.