Note 18 - Income Taxes
Income tax expense (benefit) comprises the following current and deferred amounts (in thousands):
| | | | | | | | | | | |
| December 31, 2025 | | December 31, 2024 |
| Current expense: | | | |
| Federal | $ | 1,086 | | | $ | 2,304 | |
| State | 413 | | | 820 | |
| Total current expense | 1,499 | | | 3,124 | |
| Deferred benefit: | | | |
| Federal | (4,332) | | | (10,814) | |
| State | (845) | | | (2,029) | |
| Total deferred benefit | (5,177) | | | (12,843) | |
| Change in valuation allowance | 20,425 | | | — | |
| Total income tax expense (benefit) | $ | 16,747 | | | $ | (9,719) | |
The following table reconciles the statutory federal income tax rate to the effective income tax rate (dollar amounts presented in thousands):
| | | | | | | | | | | | | | | | | |
| December 31, 2025 | | December 31, 2024 |
| Amount | Percent | | Amount | Percent |
| Income taxes at federal statutory rate | $ | 105 | | 21.0 | % | | $ | 7,809 | | 21.0 | % |
| State income taxes, net of federal tax | (519) | | (103.8) | % | | (1,381) | | (3.7) | % |
| Change in fair value of derivative liabilities | (2,087) | | (417.7) | % | | (18,756) | | (50.4) | % |
| Non-deductible compensation | 544 | | 109.0 | % | | 172 | | 0.5 | % |
| Stock-based compensation | 124 | | 24.9 | % | | 159 | | 0.4 | % |
| Return to provision | (2,261) | | (452.4) | % | | — | | — | % |
| Valuation allowance | 20,425 | | 4,087.2 | % | | — | | — | % |
| Goodwill impairment | 241 | | 48.2 | % | | — | | — | % |
| Meals and entertainment | 9 | | 1.8 | % | | 17 | | — | % |
| Transaction costs | 165 | | 33.0 | % | | — | | — | % |
| Loss on extinguishment of convertible notes | — | | — | % | | 2,261 | | 6.1 | % |
| Other | 1 | | 0.1 | % | | — | | — | % |
| Income tax expense (benefit) | $ | 16,747 | | 3,351.3 | % | | $ | (9,719) | | (26.1) | % |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities (in thousands):
| | | | | | | | | | | |
| December 31, 2025 | | December 31, 2024 |
| Deferred tax assets: | | | |
| §263A uniform capitalization rules | $ | 475 | | | $ | 318 | |
| Warranty reserve | 638 | | | 550 | |
| Other accrued expenses and liabilities | 903 | | | 1,234 | |
| Stock-based compensation | 3,399 | | | 2,832 | |
| Interest expense | 14,869 | | | 10,569 | |
| Operating lease liabilities | 484 | | | 738 | |
| Start-up/organization costs | 1,366 | | | 1,475 | |
| Other | 86 | | | 51 | |
| Valuation allowance | (20,425) | | | — | |
| Total deferred tax asset | 1,795 | | | 17,767 | |
| Deferred tax liabilities: | | | |
| §481(a) unfavorable adjustment | (258) | | | (516) | |
| Inventories | (252) | | | (751) | |
| Prepaid insurance | (268) | | | (273) | |
| Property, plant and equipment, net | (468) | | | (125) | |
| Operating right-of-use assets | (451) | | | (693) | |
| Intangible assets | (89) | | | (85) | |
| Other | (9) | | | (76) | |
| Total deferred tax liability | (1,795) | | | (2,519) | |
| Net deferred tax asset | $ | — | | | $ | 15,248 | |
Deferred income tax assets and liabilities are recognized for the future tax consequences of temporary differences. Temporary differences arise when revenues and expenses for financial reporting are recognized for tax purposes in a different period. ASC 740, Income Taxes, requires that a valuation allowance be recorded against deferred tax assets unless it is more likely than not that the deferred tax assets will be utilized. The Company evaluates deferred income tax assets on at least an annual basis to determine if valuation allowances are required by considering all available evidence. As a result of the analysis performed in 2025, the Company established a full valuation allowance against its net deferred tax assets.
As of December 31, 2025 and 2024, the Company had no uncertain tax positions that qualify for inclusion in the consolidated financial statements, and has not recognized or accrued for any interest or penalties. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. UHG is subject to U.S. federal income tax and various state income tax examinations for calendar tax years ending 2020 through 2025. Currently, the Company is not subject to any open audits.
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.