TaoWeave, Inc. Income Taxes Disclosure

Note 11 - Income Taxes

 

In December 2023, the FASB issued ASU No. 2023‑09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the transparency of income tax disclosures by requiring additional disaggregation in the effective tax rate reconciliation and disclosures of income taxes paid by jurisdiction. The guidance does not change the recognition or measurement of income taxes. The Company adopted ASU 2023‑09 effective January 1, 2025, on a prospective basis. The adoption impacted the Company’s income tax disclosures but did not have a material impact on its consolidated financial statements

 

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

 

		Year Ended December 31,
		2025				2024
United States		$	(6,353	)		$	(4,033	)
Foreign			—				—
Total		$	(6,353	)		$	(4,033	)

 

The following table sets forth income before taxes and the income tax expense for the years ended December 31, 2025, and 2024 (in thousands):

 

		Year Ended December 31,
		2025				2024
Current:
Federal		$	—			$	—
Foreign			—				3
State			2				7
Total current			2				10
Total deferred			—				—
Income tax expense		$	2			$	10

 

 

Upon adoption of ASU 2023-09, the reconciliation of taxes at the federal statutory rate to our provision for (benefit from) income taxes for the year ended December 31, 2025, was as follows (in thousands, except for percentages):

 

		Amount				Percent
U.S. federal statutory rate		$	(1,334	)			21.00	%
State and local taxes, net of federal effects (1)			1				(0.01	)%
Change in valuation allowance			1,259				(19.82	)%
Nontaxable or nondeductible items			54				(0.85	)%
Other Reconciling Items			22				(0.35	)%
Effective tax rates		$	2				(0.03	)%

 

(1)	The states and local jurisdictions that contribute to the majority (greater than 50% of the tax effect in this category include California, Colorado, and Pennsylvania.

 

The reconciliation of taxes at the federal statutory rate to our provision for (benefit from) income taxes for the year ended December 31, 2024, in accordance with the guidance prior to the adoption of ASU 2023-0, was as follows (in thousands):

 

		Amount
U.S. federal income taxes at the statutory rate		$	(847	)
State Taxes, Net of Federal Effects			(57	)
U.S Federal and State NOL Carryforward adjustment for expired NOLs and other			62
Stock Compensation Adjust for Expired Options			67
Change in valuation allowance			1,026
State Taxes, Change in Apportionment Rate			(297	)
Other			56
Income tax expense		$	10

 

Upon adoption of ASU 2023-09, cash paid for income taxes, net of refunds, during the year ended December 31, 2025, was as follows (in thousands):

 

Federal		$	—
State
California			2
New Jersey			4
Other States			1
Total cash paid for income taxes, net of refunds		$	7

 

The tax effect of the temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2025, and 2024 is presented below (in thousands):

 

		Year Ended December 31,
		2025				2024
Deferred tax assets (liabilities):
Tax benefit of operating loss carry forward - Federal		$	30,801			$	30,164
Tax benefit of operating loss carry forward - State			6,360				6,319
Accrued expenses			193				211
Deferred revenue			3				8
Fixed assets			—				1
Inventory			195				199
Intangible amortization			8				19
Section 174 research and experimentation			174				261
R&D credit			2,154				2,154
Texas margin tax temporary credit			37				37
Charitable contributions			41				33
Unrealized loss - digital assets			795				—
Total deferred tax asset, net of deferred tax liabilities			40,761				39,406
Valuation allowance			(40,761	)			(39,406	)
Net deferred tax asset		$	—			$	—

 

The ending balances of the deferred tax asset have been fully reserved, reflecting uncertainties regarding the realizability, as evidenced by the Company’s historical results. The change in the valuation allowance for the year ended December 31, 2025, is an increase of $1,356,000. The change in the valuation allowance for the year ended December 31, 2024, was a decrease of $1,026,000.

 

We and our subsidiary file federal and state tax returns on a consolidated basis. On October 1, 2019, TaoWeave, Inc. (fka Oblong, Inc.) acquired the stock of Oblong Industries Inc., resulting in Oblong Industries Inc.'s shareholders owning 75% of TaoWeave, 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 occured or do occur in the future, the use of NOL carryforwards and research and development credits could be subject to further limitation. As a result of this annual limitation and the limited carryforward life of the accumulated NOLs, we determined the 2019 ownership change resulted in a permanent loss of approximately $30,880,000 of federal NOL carryforwards. State NOL carryforwards were limited in a similar fashion. The Company has not conducted a study subsequent to the 2019 one to determine if any such additional changes have occurred that could limit the Company's ability to use net operating losses and tax credit carryforwards.

 

The Company had federal net operating loss carryforwards of $146,673,000 as of December 31, 2025. Of this amount, $75,138,000 will expire in various amounts from 2026 through 2037. As of December 31, 2025, the Company also has various state net operating loss carryforwards of an estimated $107,065,000. 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 carryforward of $2,154,000 at  December 31, 2025. The Research and Development credits begin to expire in 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, 2025, and 2024. The Company does not anticipate any material change to its 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, 2025, and 2024.

 

The Internal Revenue Service may generally assess 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, 2022. However, there are exceptions that can extend the statute of limitations to six years and, in some cases, prevent it from ever expiring.