INCOME TAXES

12 Months Ended

Dec. 31, 2025

INCOME TAXES

INCOME TAXES

11.  INCOME TAXES

The provision (benefit) for income taxes consists of the following:

	For the Years Ended December 31,
	2025		2024		2023
Current tax provision (benefit)
Federal	$	—	$	(33,734)	$	33,734
State		291,293		7,893		(65,529)
Total current provision (benefit)		291,293		(25,841)		(31,795)
Deferred tax provision (benefit)
Federal		—		8,285,927		(1,855,875)
State		—		106,104		(17,491)
Total deferred tax provision (benefit)		—		8,392,031		(1,873,366)
Total income tax provision	$	291,293	$	8,366,190	$	(1,905,161)

The Company uses the recognition and measurement provisions of the FASB ASC Topic 740, Income Taxes (“Topic 740”), to account for income taxes. The provisions of Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing net deferred tax assets cannot be met. Furthermore, the weight given to the potential effect of such evidence  should be commensurate with the extent to which it can be objectively verified. The Company reviewed the operating results, as well as all of the positive and negative evidence related to realization of such deferred tax assets, to evaluate the need for a valuation allowance.  As of December 31, 2025, the Company concluded that a full $11.6 million valuation is needed on the net deferred tax assets. As of December 31, 2024, the Company recorded a full valuation allowance of $9.1 million against its net deferred tax asset.

As of December 31, 2025, the Company had federal net operating losses of $44.8 million with no expiration date and state net operating losses of $4.9 million which will begin to expire in 2029.

Utilization of the federal net operating loss carry forwards and credits may be subject to a substantial annual limitation due to the ownership change limitations under Internal Revenue Code Section 382. State net operating losses and credits are subject to limitations under similar rules.

Deferred taxes are provided for those items reported in different periods for income tax and financial reporting purposes.  The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:

	December 31,
	2025		2024
Deferred tax assets
Net operating loss carry forwards	$	9,687,582	$	8,466,565
Right of Use Lease Liability		43,562		—
Interest Expense Limitation		8,755		—
Charitable Contribution Carryover		105,563		—
Accrued expenses and reserves		802,544		647,654
Employee stock option expense		13,311		13,311
Inventories		201,421		345,926
Deferred income – TIA contract		12,237,854		13,495,321
Capital loss		194,397		269,651
Deferred tax assets		23,294,988		23,238,428
Deferred tax liabilities
Unrealized gains/losses		(24,451)		(1,088,481)
Right of Use Asset		(65,075)		—
Property, plant, and equipment		(11,556,742)		(13,046,294)
Deferred tax liabilities		(11,646,268)		(14,134,775)
Net deferred assets		11,648,721		9,103,653
Valuation allowance		(11,648,721)		(9,103,653)
Net deferred tax assets	$	—	$	—

*Certain totals may not reconcile due to rounding.

Deferred income tax calculations reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss carry forwards, and are stated at the U.S. tax rate of 21%. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years.

Under the Tax Cuts and Jobs Act, net operating losses incurred after December 31, 2017 can only offset 80% of taxable income.  However, these net operating losses may be carried forward indefinitely instead of limited to twenty years under previous tax law. Carryback of these losses is no longer permitted.

The CARES Act temporarily removed the 80% of taxable income limitation to allow NOL carryforwards to fully offset income.  For tax years beginning after 2021, the Company can take: (1) a 100% deduction of NOLs arising in tax years prior to 2018, and (2) a deduction limited to 80% of modified taxable income for NOLs arising in tax years after 2017.

On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was enacted into law, introducing significant changes to corporate income tax rates and deductions. For fiscal year 2025, the OBBBA did not have a material impact on the Company’s effective tax rate. The Company will continue to evaluate the future impact of the OBBBA for those provisions that are effective after fiscal year 2025.

The Company adopted ASU 2023-09 as of January 1, 2025.  As a result, the Company enhanced its income tax disclosures, including additional disaggregation of effective tax rate reconciliation and income taxes paid.

A reconciliation of the federal statutory corporate tax rate to the Company’s effective tax rate is as follows:

		December 31,
		2025
U.S. statutory federal tax rate	$	(2,577,526)	21.0	%
State tax, net of federal tax		239,507	(1.9)
Valuation Allowance		2,535,681	(20.7)
Nontaxable or Nondeductible Items		93,631	(0.8)
Effective tax rate	$	291,293	(2.4)	%

	December 31,
	2024		2023
U.S. statutory federal tax rate	21.0	%	21.0	%
State tax, net of federal tax	(0.6)		0.8
Change in valuation allowance	(250.6)		—
Valuation Allowance	—		(0.2)
Section 162(m); Limit on Compensation	(0.8)		(0.2)
Return-to-provision and deferred true up	(6.7)		0.1
Effective tax rate	(237.7)	%	21.5	%

The Company files income tax returns in the U.S. federal jurisdiction and in various state and local jurisdictions.  The Company’s federal income tax returns for all tax years ended on or after December 31, 2022 remain subject to examination by the Internal Revenue Service.  The Company’s state and local income tax returns are subject to examination by the respective state and local authorities over various statutes of limitations, most ranging from three to five years from the date of filing.

Cash paid for income taxes, net of refunds, for the year ended December 31, 2025 were as follows:

	December 31,
	2025
Federal	$	—
State:
California		(353,453)
Other		6,546
Income taxes, net of amounts refunded	$	(346,907)

	For the Years Ended December 31,
	2024		2023
Income taxes, net of amounts refunded	$	—	$	(9,747,239)