Income Taxes
The provision for income taxes consists of the following (amounts in thousands):
| | | | | | | | | | | |
| December 31, |
| 2025 | | 2024 |
| Current provision: | | | |
| Federal | $ | — | | | $ | — | |
| State | 91 | | | 85 | |
| Total current | 91 | | | 85 | |
| Deferred expense (benefit): | | | |
| Federal | 45 | | | (998) | |
| State | (51) | | | (109) | |
| Total deferred | (6) | | | (1,107) | |
| Income tax expense (benefit) | $ | 85 | | | $ | (1,022) | |
A reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate consists of the following (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2025 | | 2024 |
| Provision for federal income taxes at statutory rates | $ | (4,246) | | | 21 | % | | $ | (4,761) | | | 21 | % |
| Provision for state income taxes, net of federal benefit* | 31 | | — | % | | (19) | | — | % |
| Change in valuation allowance | 2,479 | | (12) | % | | 252 | | (1) | % |
| Nondeductible expenses | 0 | | — | % | | 350 | | (2) | % |
| Nondeductible book goodwill disposed | 875 | | (4) | % | | 0 | | — | % |
| Nondeductible meals and entertainment | 18 | | — | % | | 0 | | — | % |
| Other nondeductible expenses | 1 | | — | % | | 0 | | — | % |
| Stock compensation adjustments | 927 | | (5) | % | | 3,287 | | (14) | % |
| Other | — | | | — | % | | (131) | | 1 | % |
| Income tax expense (benefit) | $ | 85 | | | — | % | | $ | (1,022) | | | 5 | % |
| Effective Tax Rate | (0.4)% | | | | 4.5% | | |
*The jurisdiction that contributes to the majority of the tax effect in this category is Texas.
The tax effects of the temporary differences and carryforwards that give rise to the deferred tax assets consist of the following (amounts in thousands):
| | | | | | | | | | | |
| December 31, |
| 2025 | | 2024 |
| Deferred tax assets | | | |
| Net operating loss carryforward | $ | 13,682 | | | $ | 12,564 | |
| Property and equipment | 167 | | | 139 | |
| Reserves | 1,029 | | | 587 | |
| Share-based compensation | 369 | | | 1,229 | |
| Interest expense carryforward | 300 | | | 173 | |
| Research and development credits | 35 | | | 35 | |
| Lease liability | 1,151 | | | 1,095 | |
| Basis in partnership | 13 | | | 2 | |
| Internally developed software | 910 | | | 12 | |
| Charitable contributions carryover | 34 | | | 34 | |
| Total deferred tax assets | 17,690 | | | 15,870 | |
| Deferred tax liabilities | | | |
| Intangibles | (580) | | | (1,512) | |
| Right-of-Use assets | (970) | | | (870) | |
| Prepaid expenses | (379) | | | (374) | |
| Total deferred tax liabilities | (1,929) | | | (2,756) | |
| Valuation allowance | (15,803) | | | (13,162) | |
| Deferred tax liability, net | $ | (42) | | | $ | (48) | |
The income taxes paid (net of refunds) by jurisdiction are set forth below:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2025 | | 2024 |
| Federal | $ | — | | | $ | — | |
| State* | 68 | | | 2 | |
| Total | $ | 68 | | | $ | 2 | |
*For the year ended December 31, 2025, all income tax payments related to state income taxes. The majority of state income tax payments were made to the State of Texas.
As of December 31, 2025, and December 31, 2024, the Company had federal net operating loss carryforwards of approximately $59.2 million and $54.6 million and state net operating loss carryforwards of approximately $33.5 million and $28.9 million, respectively. Federal net operating losses in the amount of $58.2 million carryforward indefinitely; the remainder are subject to expiration beginning in 2035. Unused state net operating losses will begin to expire in 2032. Utilization of the net operating loss carryforwards may be subject to an annual limitation according to Section 382 of the Internal Revenue Code of 1986 as amended, and similar provisions.
The Company applies the standards on uncertainty in income taxes contained in ASC Topic 740, Accounting for Income Taxes. The adoption of this interpretation did not have any impact on the Company’s consolidated financial statements, as the Company did not have any significant unrecognized tax benefits during the years ended December 31, 2025 and 2024. Due to the Company's carryforward of net operating losses the statute of limitations remains open subsequent to and including the year ended December 31, 2015.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.