REED'S, INC. Income Taxes Disclosure

12. Income Taxes

 

The Company is subject to taxation in the United States and various foreign jurisdictions.

 

For the years ended December 31, 2025 and 2024, a reconciliation of the effective income tax rate to the U.S. statutory rate is as follows:

 

Schedule of Reconciliation of Effective Income Tax Rate to U.S. Statutory Rate

		December 31, 2025				December 31, 2024
Federal statutory tax rate			(21	)%			(21	)%
State rate, net of federal benefit			(5	)%			(5	)%
Foreign tax rate differential			(1	)%			-	%
Total federal and state statutory tax rate			(27	)%			(26	)%
Effect of change in tax rate			-	%			-	%
Valuation allowance			27	%			26	%
Effective tax rate		$	-			$	-

 

As of December 31, 2025 and 2024, significant components of the Company’s deferred tax assets and liabilities are as follows:

 

Schedule of Deferred Income Tax Assets

		December 31, 2025				December 31, 2024
Deferred income tax asset:
Net operating loss carryforwards - US		$	28,288			$	25,309
Net operating loss carryforwards - Foreign			240				-
Disqualified corporate interest expense			4,876				4,642
Stock-based compensation			2,271				2,256
Accrued bonus and vacation			66				-
Accounts receivable allowances			541				476
Inventory reserves			213				51
Operating lease liability			220				219
Other			-				-
Asset impairment			-				58
Gross deferred tax assets			36,715				33,011
Valuation allowance			(36,277	)			(32,793	)
Total deferred tax assets			438				218
Deferred tax liabilities:
Property and equipment		$	(69	)			-
Intangibles			(165	)			-
Operating lease right-of-use asset			(204	)			(218	)
Deferred finance costs							-
Total deferred tax liabilities			(438	)			(218	)
Net deferred tax asset (liability)		$	--			$	-

 

At December 31, 2025 and 2024, the Company had available Federal and state net operating loss carryforwards (“NOL”s) to reduce future taxable income. For Federal purposes the amounts available were approximately $117,000 and $105,000, respectively. For state purposes approximately $73,000 and $59,000 was available at December 31, 2025 and 2024, respectively. Foreign net operating loss carryforwards are approximately $2,000 at December 31, 2025, with expiration dates ranging from 2035 to indefinite depending on the jurisdiction. The Federal carryforward for NOLs arising in years prior to 2018 is approximately $31,000, which expires on various dates through 2037. NOLs originating after 2017 of approximately $86,000, can be carried forward indefinitely, but are only able to offset 80% of taxable income in future years. The state carryforward expires on various dates through 2045. Given the Company’s history of net operating losses, management has determined that it is more likely than not that the Company will not be able to realize the tax benefit of the carryforwards. Accordingly, the Company has not recognized a deferred tax asset for this benefit.

 

Due to restrictions imposed by Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with loss carryforwards, the utilization of the Company’s NOL may be limited as a result of changes in stock ownership. NOLs incurred subsequent to the latest change in control are not subject to the limitation.

 

The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of December 31, 2025 and 2024, the Company did not have a liability for unrecognized tax benefits.

 

The Company recognizes as income tax expense, interest and penalties on uncertain tax provisions. As of December 31, 2025 and 2024, the Company has not accrued interest or penalties related to uncertain tax positions. As of the year ended December 31, 2025, the tax returns for 2022 through 2025 remain open to examination by the Internal Revenue Service and for 2021 to 2025 for various state taxing jurisdictions to which the Company is subject.

 

Upon the attainment of taxable income by the Company, management will assess the likelihood of realizing the tax benefit associated with the use of the NOLs and will recognize the appropriate deferred tax asset at that time.