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

INCOME TAXES

v3.26.1
INCOME TAXES
 12 Months Ended
Dec. 31, 2025
INCOME TAXES  
INCOME TAXES

NOTE 18. INCOME TAXES

The components of the income tax provision are as follows:

​

​

​

​

​

​

​

​

​

​

Years Ended December 31, 

($’s in thousands)

  ​ ​ ​

2025

  ​ ​ ​

2024

Current:

​

​

  ​

​

​

  ​

Federal

​

$

—

​

$

2

State

​

 

60

​

​

58

Total current

​

 

60

​

​

60

​

​

​

​

​

​

​

Deferred:

​

 

​

​

​

​

Federal

​

 

(2,223)

​

​

(2,704)

State

​

 

(44)

​

​

(1,184)

Total deferred

​

 

(2,267)

​

​

(3,888)

Valuation allowance

​

​

2,267

​

​

3,889

Total income tax expense

​

$

60

​

$

61

​

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

The significant components of the Company’s deferred tax assets consisted of the following:

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​

​

​

​

​

​

​

​

​

December 31, 

($’s in thousands)

  ​ ​ ​

2025

  ​ ​ ​

2024

Deferred tax assets:

​

​

  ​

​

​

  ​

Net operating loss carryforwards

​

$

8,036

​

$

6,814

Amortization of license fees

​

 

5,480

​

​

5,670

R&D capitalization

​

 

2,711

​

​

4,714

Stock compensation

​

 

2,077

​

​

1,647

Lease liability

​

​

29

​

​

51

Reserve on sales return, discount and bad debt

​

 

4,636

​

​

2,471

Accruals and reserves

​

 

1,445

​

​

850

Tax credits

​

 

1,493

​

​

1,493

Business interest expense deduction limit

​

 

321

​

​

373

State taxes

​

 

18

​

​

10

Other

​

​

91

​

​

—

Total deferred tax assets

​

 

26,337

​

​

24,093

Less: valuation allowance

​

​

(26,310)

​

​

(24,043)

Deferred tax assets, net

​

$

27

​

$

50

​

​

​

​

​

​

​

Deferred tax liability:

​

​

​

​

​

​

Right-of-use asset

​

​

(27)

​

​

(50)

Deferred tax assets, net

​

$

—

​

$

—

​

The Company adopted ASU 2023-09 on a prospective basis. As a result, the 2025 rate reconciliation is presented in accordance with the new disclosure requirements, while the 2024 reconciliation continues to be presented under the disclosure requirements in effect for that period.

​

A reconciliation of income tax computed at the federal statutory rate to the provision for income taxes pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025, was as follows:

​

​

​

​

​

​

​

​

​

  ​ ​ ​

Years Ended December 31,

 

​

​

2025

 

($’s in thousands)

  ​ ​ ​

Amount

  ​ ​ ​

Percent

 

U.S. federal statutory tax rate

​

$

(2,388)

 

21.0

%

State and local income taxes, net of federal income tax effect(1)

​

 

42

 

-0.4

%

Change in valuation allowance

​

 

2,223

 

-19.5

%

Non-deductible items:

​

 

  ​

 

  ​

​

Share-based compensation

​

 

(277)

 

2.4

%

Non-deductible compensation

​

 

406

 

-3.6

%

Other

​

 

85

 

-0.7

%

Other adjustments

​

 

(31)

 

-0.3

%

Provision for income taxes and effective income tax rate

​

$

60

 

-0.5

%

(1)

During the year ended December 31, 2025, state taxes in Arizona, California, New York, New Jersey, Florida, and Texas comprised greater than 50% of the tax effect in this category.

A reconciliation of the statutory tax rates and the effective tax rates for the year ended December 31, 2024, was as follows:

​

​

​

​

​

​

​

Years Ended December 31, 

​

​

  ​ ​ ​

2024

​

Percentage of pre-tax income:

​

  ​

​

U.S. federal statutory income tax rate

 

21

%

State taxes, net of federal benefit

 

3

%

Non-deductible items

 

-2

%

State tax adjustments

 

3

%

Change in valuation allowance

​

-28

%

Share-based compensation

​

2

%

Effective income tax rate

 

-1

%

​

As required by ASC 740, the Company has evaluated the evidence bearing upon the realizability of its deferred tax assets. Based on the weight of available evidence, both positive and negative, the Company has determined that it is more likely than not that it will not realize the benefits of these assets. Accordingly, the Company recorded a valuation allowance of $26.0 million at December 31, 2025, representing an increase of $2.2 million.

As of December 31, 2025, the Company had federal and state NOL carryforwards of approximately $30.9 million and $32.3 million, respectively. The Federal NOL carryforwards do not expire, but $27.1 million of the state NOL carryforwards expire if not utilized prior to 2045.

Utilization of the U.S. federal and state NOL carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax liabilities, respectively. The Company has performed calculations through December 31, 2023, to support that its NOL carryovers are subject to limitations under section 382 (“382 Limitations”). Based on the analysis of the NOL carryovers subject to the 382 Limitations, the Company concluded that the 382 Limitations would not prevent the Company from utilizing all of its NOL carryovers in 2023.

The Company’s ability to use its remaining net operating loss and tax credit carryforwards may be further limited if the Company experiences another Section 382 ownership change due to future changes in its stock ownership. Because of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not have an impact on the Company’s effective tax rate.

At December 31, 2025 and December 31, 2024, the Company did not have any significant uncertain tax positions. The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2025 and 2024, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations.

The Company is subject to U.S. federal and state taxes. Because of net operating losses, all federal tax years since inception remain open for the assessment of income taxes. The expiration of the statute of limitations related to the various state income and franchise tax returns varies by state.

Income taxes paid (net of refunds received) by jurisdiction, pursuant to the disclosure requirements of ASU 2023-09, were as follows:

​

​

​

​

​

​

  ​ ​ ​

Years Ended December 31,

($’s in thousands)

​

2025

Federal

​

$

1

State

​

 

  ​

Texas

​

$

45

Other

​

 

4

Total net payments (refunds)

​

$

50

​