Annual report [Section 13 and 15(d), not S-K Item 405]

INCOME TAX

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

NOTE 18 – INCOME TAX

 

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax calculations assume a U.S. federal income tax rate of 21% and California tax rate of 8.84%.

 

 

Net deferred tax assets (liabilities) consist of the following components as of December 31:

 

    2025     2024  
Deferred Tax Assets (Liabilities):                
Net operating losses   $ 29,672,000     $ 25,430,000  
Stock-based compensation     1,945,000       1,899,000  
Interest expense     406,000       381,000  
Accounts receivable reserve     241,000       129,000  
Contributions carryover     314,000       242,000  
Intangibles     (7,797,056 )     (8,307,000 )
Inventory     1,267,000       684,000  
Research and development costs     55,000       57,000  
Total deferred tax assets:     26,102,944       20,515,000  
Less valuation allowance     (26,102,944 )     (20,515,000 )
Net deferred tax assets (liabilities)   $ -     $ -  

 

The income tax provision for the years ended December 31 is comprised of:

 

      2025       2024  
Current federal   $ -     $ -  
Current state     -       -  
Deferred federal     -       -  
Deferred state     -       -  
Provision for income tax   $ -     $ -  

 

 

 

The following is a reconciliation from the Company’s statutory rate to the effective tax rate reported in the financial statements:

  

    2025     2024  
Federal statutory tax benefit   $ (4,394,716 )     21.0 %   $ (1,037,264 )     21.0 %
State tax benefit, net of federal     (1,461,473 )     7.0 %     (345,200 )     7.0 %
Non-deductible items     301,154       (1.5 )%     3,914       (0.1 )%
True-up adjustments     (32,908 )     0.2 %     (10,350 )     0.2 %
Change in valuation allowance     5,587,944       (26.7 )%     1,388,900       (28.1 )%
Total tax expense   $ -       0.0 %   $ -       0.0 %

 

At December 31, 2025, the Company had net operating loss carry forwards of approximately $119,603,000 including approximately $19,171,000 from periods prior to 2017 that may be offset against future taxable income through 2033. Net operating losses from 2017 and later carry an indefinite life. At December 31, 2025, the Company had state net operating loss carry forwards of approximately $78,949,000 that may be offset against future taxable income through 2033. No tax expense or benefit has been reported in the December 31, 2025 or 2024 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. The Company’s valuation allowance increased by $5,587,944 for the year ended December 31, 2025.

 

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2021.

 

Federal and state tax laws impose significant restrictions on the utilization of net operating loss carryforwards in the event of a change in ownership of the Company, as defined by Internal Revenue Code Section 382 (Section 382). As of December 31, 2025, the Company has not performed a formal Section 382 study; however, the Company has reviewed its temporary taxable differences in conjunction with its temporary deductible differences as a measure against its definite lived net operating losses and anticipates any impact to be mitigated with additional net operating losses from temporary deductible differences.

 

The Company acquired approximately $44.3 million in net operating loss carryforwards as a result of its 2023 acquisition of Soylent. The Company also acquired approximately $14.4 million and $17.8 million in net operating loss carryforwards as a result of its 2022 acquisitions of AOS and Skylar, respectively. The Company believes the future benefit of those net operating losses are limited due to the change of ownership provisions under Section 382.

 

The Company has evaluated its income tax positions and has determined that it does not have any uncertain tax positions. The Company will recognize interest and penalties related to any uncertain tax position through its income tax expense.