BARFRESH FOOD GROUP INC. Income Taxes Disclosure

Note 8. Income Taxes

 

Income tax provision (benefit) for the years ended December 31, 2025 and 2024 is summarized below:

 Summary of Income Tax Provision (Benefit)

		2025				2024
Current:
Federal		$	-			$	-
State			-				-
Total			-				-
Deferred:
Federal			(749,000	)			(626,000	)
State			752,000				1,270,000
Change in valuation allowance			(288,000	)			(644,000	)
Total			(285,000	)			-
Benefit of income taxes		$	(285,000	)		$	-

 

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate before provision for income taxes. The sources and tax effect of the differences are as follows:

 Summary of Statutory Federal Income Tax Rate Before Provision for Income Taxes

		2025								2024
Statutory federal income tax rate		$	(632,000	)			21	%			21	%
State tax			(105,000	)			3				4
Permanent differences			164,000				(5	)			-
Change in valuation allowance			288,000				(10	)			(25	)
Net benefit of income taxes		$	(285,000	)			9	%			-	%

 

Components of the net deferred income tax assets at December 31, 2025 and 2024 were as follows:

Schedule of Components of Net Deferred Income Tax Assets 

		2025				2024
Deferred tax asset - Net operating loss carryover		$	13,920,000			$	13,923,000
Valuation allowance			(13,635,000	)			(13,923,000	)
Net deferred tax asset			285,000				-
Deferred tax liability - depreciation			(285,000	)			-
Net deferred tax asset		$	-			$	-

 

The Company recognized an income tax benefit of $285,000 related to the release of valuation allowance as a result of the Acquisition (Note 11). ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of evidence, it is more likely than not that some portion or all of the deferred tax assets will not be recognized. After consideration of all the evidence, both positive and negative, management has determined that a 100% valuation allowance, amounting to $13,635,000 and $13,923,000 at December 31, 2025 and 2024, respectively, is necessary to reduce the net deferred tax assets to the amount that will more likely than not be realized. The decrease in valuation allowance of $288,000 and $644,000 in 2025 and 2024, respectively, resulted from a lower blended state tax rate, partially offset by current year tax losses, and in 2025, deferred tax liabilities recognized in the Acquisition and adjustments to finalize the 2024 tax loss upon filing the tax returns.

 

 

As of December 31, 2025, the Company has a net operating loss carry forward to offset future taxable income of approximately $58,603,000, $28,482,000 of which begins to expire in 2033. Net operating loss carryforwards of $30,122,000 may be carried forward indefinitely.

 

The Company may have experienced an ownership change that could limit its ability to utilize its operating loss carryforward to offset taxable income in future years. An analysis will be required to determine whether such change has occurred, the outcome of which could impact the Company’s operating results and cash flow if and when it achieves profitability in taxable jurisdictions.

 

CARES Act

 

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to provide certain relief as a result of the COVID-19 pandemic. The CARES Act provides tax relief, along with other stimulus measures, including a provision for an Employee Retention Credit (“ERC”), which allows for employers to claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages paid to employees from the start of the COVID-19 pandemic through September 30, 2021. The ERC was designed to encourage businesses to keep employees on the payroll during the COVID-19 pandemic. The Company received a refund of $92,000 in March 2024.

 

ERC claims were permitted in a variety of circumstances with varying degrees of subjectivity and clear authoritative guidance. Paid claims are subject to IRS inspection which may occur at any time prior to expiration of the statute of limitations, generally two years from the date the refund was paid. The Company’s ERC claim was based on objectively calculated declines in revenue using methods that are clearly defined in the CARES Act and various regulations and interpretations thereof.