TaoWeave, Inc. Income Taxes Disclosure

Note 11 - Income Taxes

 

The following table sets forth pretax book loss (in thousands):

 

		Year Ended December 31,
		2024				2023
United States		$	(4,033	)		$	(4,357	)
Foreign			—				—
Total		$	(4,033	)		$	(4,357	)

 

The following table sets forth income before taxes and the income tax expense for the years ended December 31, 2024, and 2023 (in thousands):

 

		Year Ended December 31,
		2024				2023
Current:
Federal		$	—			$	—
Foreign			3				15
State			7				12
Total current			10				27
Total deferred			—				—
Income tax expense		$	10			$	27

 

Our effective tax rate differs from the statutory federal tax rate for the years ended December 31, 2024, and 2023, as shown in the following table (in thousands):

 

		Year Ended December 31,
		2024				2023
U.S. federal income taxes at the statutory rate		$	(847	)		$	(915	)
State taxes, net of federal effects			(57	)			(58	)
U.S. Federal and state NOL carryforward adjustment for expired NOLs			62				613
Stock compensation plan adjustments			67				385
Change in valuation allowance			1,026				(112	)
State taxes, change in apportionment rate			(297	)			43
Other			56				71
Income tax expense		$	10			$	27

 

The tax effect of the temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2024, and 2023 is presented below (in thousands):

 

		Year Ended December 31,
		2024				2023
Deferred tax assets (liabilities):
Tax benefit of operating loss carry forward - Federal		$	30,164			$	29,416
Tax benefit of operating loss carry forward - State			6,319				5,965
Accrued expenses			211				131
Deferred revenue			8				36
Stock-based compensation			—				56
Fixed assets			1				4
Inventory			199				156
Intangible amortization			19				32
Section 174 research and experimentation			261				—
Section 163(j) interest expense			—				314
R&D credit			2,154				2,154
Texas margin tax temporary credit			37				55
Other			33				61
Total deferred tax asset, net of deferred tax liabilities			39,406				38,380
Valuation allowance			(39,406	)			(38,380	)
Net deferred tax asset		$	—			$	—

 

The ending balances of the deferred tax asset have been fully reserved, reflecting the uncertainties as to the realizability evidenced by the Company’s historical results. The change in the valuation allowance for the year ended December 31, 2024, is an increase of $1,026,000. The change in the valuation allowance for the year ended December 31, 2023, was a decrease of $112,000.

 

 

We and our subsidiary file federal and state tax returns on a consolidated basis. On October 1, 2019, Oblong, Inc. acquired the stock of Oblong Industries Inc., resulting in Oblong Industries Inc.'s shareholders owning 75% of Oblong, Inc. Therefore, an “ownership change” occurred on this date (as defined under Section 382 of the Internal Revenue Code of 1986, as amended), which places an annual limitation on the utilization of the net operating loss (“NOL”) carryforwards accumulated before the ownership change. If additional ownership changes have occurred or do occur in the future, the use of the net operating loss carryforwards and the research and development credit could be subject to further limitation.  As a result of this annual limitation and the limited carryforward life of the accumulated NOLs, we determined that the 2019 ownership change resulted in the permanent loss of approximately $30,880,000 of federal NOL carryforwards.  State NOL carryforwards were limited in a similar fashion.

 

The Company had federal net operating loss carryforwards of $143,636,000 on December 31, 2024. Of this amount, $75,224,000 will expire in various amounts from 2025 through 2037. As of December 31, 2024, the Company also has various state net operating loss carryforwards of an estimated $106,323,000. The determination of the state net operating loss carryforwards is dependent upon apportionment percentages and state laws that can change, from year to year and impact the amount of such carryforwards. The Company has Research and Development credits of $2,154,000 at December 31, 2024. The Research and Development credits begin to expire at the end of 2026.

 

There were no significant matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return, in accordance with ASC Topic 740 “Income Taxes” (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements, that have been recorded on the Company’s Consolidated Financial Statements for the years ended December 31, 2024, and 2023. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months.

 

Additionally, ASC 740 provides guidance on the recognition of interest and penalties related to unrecognized tax benefits. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2024, and 2023.

 

The Internal Revenue Service may generally access additional income tax for the last three years. This would generally prevent the Service from opening an examination for years ended on or before December 31, 2021. However, there are exceptions that can extend the statute of limitations to six years and, in some cases, prevent it from ever expiring.