Note 8 - Income Taxes

12 Months Ended

Dec. 31, 2025

Notes to Financial Statements

Income Tax Disclosure [Text Block]

8. Income Taxes

Loss before (benefit) provision for income taxes was generated from the following sources (in thousands):

	Year Ended December 31,
	2025			2024
Domestic	$	(29,161	)	$	(48,791	)
Foreign		(242	)		81
Total loss before benefit for income taxes	$	(29,403	)	$	(48,710	)

A summary of the income (benefit) tax expense is as follows (in thousands):

	Year Ended December 31,
	2025			2024
Current:
Federal	$	—		$	—
State		13			(10	)
Foreign		39			37
Total current		52			27
Deferred:
Federal		(64	)		(27	)
State		(64	)		(13	)
Foreign		—			—
Total deferred		(128	)		(40	)
Total income tax benefit	$	(76	)	$	(13	)

A reconciliation of the (benefit) provision for income taxes to the amount of income tax expense that would result from applying the federal statutory rate to the loss before income taxes is as follows:

	December 31, 2025						December 31, 2024
	Amount			Percentage			Amount			Percentage
Tax computed at the Federal statutory rate	$	(6,192	)		21.00	%	$	(10,229	)		21.00	%
State and local tax (net of FBOS)		(40	)		0.14	%		(18	)		0.04	%
Effect of cross-border tax laws		136			-0.46	%		240			-0.49	%
Tax Credits		—			0.00	%		—			0.00	%
Change in valuation allowance		4,655			-15.79	%		9,050			-18.58	%
Nontaxable or nondeductible items:
Material Nondeductible items		—			0.00	%		—			0.00	%
Other items under 5% each		1,295			-4.39	%		679			-1.39	%
Worldwide changes in unrecognized tax benefits		—			0.00	%		—			0.00	%
Foreign tax effects		90			-0.31	%		20			-0.04	%
Other:
Prior Year True-Up		(20	)		0.07	%		245			-0.50	%
	$	(76	)		0.26	%	$	(13	)		0.03	%

The state and local income taxes which comprise the majority of the state and local income taxes, net of federal effect category are Oregon, Kansas, Missouri, Colorado, and then Pennsylvania.

The major components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

	Year Ended December 31,
	2025			2024
Deferred income tax assets
Net operating loss carry forwards	$	52,759		$	46,827
Intangibles		11,101			10,356
Research and development expenses		6,438			8,057
Credit carry forwards		2,478			2,478
Nondeductible accruals		235			294
163j limitation		105			89
Fixed assets		368			392
Equity-based compensation		91			111
Other		1,515			1,525
Valuation Allowance		(75,024	)		(70,154	)
Total deferred income tax assets - net		66			(23	)
Deferred income tax liabilities
Foreign intangibles		—			—
Unrealized gain/loss		(27	)		(9	)
ASC 842 Lease Accounting		37			(11	)
Prepaid expenses		(77	)		(85	)
Total deferred income liabilities		(66	)		(105	)
Net deferred income tax assets/(liabilities)	$	—		$	(128	)

The Company has federal and state net operating loss ("NOL") carryforwards of approximately $233.9 million and $192.2 million, respectively, at  December 31, 2025, and federal and state NOL carryforwards of $207.3 million and $180.9 million at December 31, 2024, respectively, to reduce future cash payments for income taxes. The federal NOL carryforwards generated prior to 2018 will expire from 2031 and 2037 and state NOL carryforwards will expire through 2041.  Federal NOL carryforwards generated in 2018 and thereafter have no expiration date. 

The Company has federal tax credit carryforwards of approximately $2.5 million at both  December 31, 2025 and  December 31, 2024. The Company has state tax credit carryforwards of $0.7 million at both  December 31, 2025 and  December 31, 2024. These tax credits will begin to expire in 2028. To the extent that an ownership change has occurred under Internal Revenue Code Sections 382 and 383, the Company’s use of its loss carryforwards and credit carryforwards to offset future taxable income may be limited. No ownership changes have occurred as of  December 31, 2025.

At  December 31, 2025 and 2024, the Company had unrecognized tax benefits, including interest and penalties, of approximately $0.4 million, with no changes in those balances.

We account for income taxes as required FASB ASC Topic No. 740, Income Taxes. This Topic clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Topic also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Topic requires an entity to recognize the financial statement impact of a tax position when it is more likely than not that the position will be sustained upon examination. The amount recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. In addition, the Topic permits an entity to recognize interest and penalties related to tax uncertainties either as income tax expense or operating expenses. The Company has chosen to recognize interest and penalties related to tax uncertainties as income tax expense.

In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. A significant factor in the Company’s assessment is that the Company has been in a three-year historical cumulative loss as of the end of fiscal 2025. In addition, the Company was also in a loss for the year ending December 31, 2023 as well as for the year ending December 31, 2024. These facts, combined with uncertain near-term market and economic conditions, reduced the Company’s ability to rely on projections of future taxable income in assessing the realizability of its deferred tax assets.

After a review of the four sources of taxable income as of  December 31, 2025 (as described above), and after consideration of the Company’s continuing cumulative loss position as of  December 31, 2025, the Company recorded a valuation allowance related to its U.S.-based deferred tax assets of $75.0 million at  December 31, 2025. The valuation allowance on deferred tax assets increased by $4.9 million and increased by $11.7 million in 2025 and 2024, respectively.

The Company is subject to U.S. federal income tax as well as to income tax of multiple state jurisdictions. Currently there are no audits in process or pending from Federal or state tax authorities. The outcome of any tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. As of  December 31, 2025, a current estimate of the range of changes that may occur within the next twelve months cannot be made due to the uncertainty regarding the timing of these events.

For financial reporting purposes, income before provision for income taxes for the Company’s foreign subsidiaries was approximately $0.2 million and $0.1 million years ended  December 31, 2025 and 2024, respectively. Smith Micro does not provide for U.S. taxes on its unremitted earnings of foreign subsidiaries that have not been previously taxed since the Company intends to invest such undistributed earnings indefinitely outside of the U.S.

The 2017 U.S. Tax Cuts and Jobs Act subjects a U.S. shareholder to current tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The Company's accounting policy is to recognize the tax on GILTI as a period expense in the period the tax is incurred. The current income related to the GILTI inclusion in 2025 is $0.6 million.

On July 4, 2025 the One Big Beautiful Bill Act (OBBBA) was signed into law which introduces significant changes to the U.S. corporate tax system. The main impacts of OBBBA for the Company are the ability to deduct domestic Section 174 Research and Development costs for tax years 2025 forward, 100% bonus depreciation, and changes to 163(j) interest limitations to remove depreciation and amortization expense from adjusted taxable income.  These changes do not have a material impact on the Company’s taxable position.  The Company is electing under OBBBA to continue to amortize Section 174 costs capitalized in 2022-2024 through the remaining lives of the assets instead of taking a one-time deduction in 2025 for all unamortized amounts.

The cash paid for income taxes (net of refunds) for the years ended  December 31, 2025 and 2024, respectively, as follows (in thousands):

	Year Ended December 31,
	2025			2024
Federal	$	—		$	—
State		(2	)		4
Foreign		62			76
Total	$	60		$	80