Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes

v3.26.1
Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
A reconciliation of the federal statutory income tax provision and tax rate to our actual provision and expected tax rate for the years ended December 31, 2025 and 2024 is as follows:
2025 2024
Provision Rate Provision Rate
Pre-tax book income (loss) $ (8,228,728) $ (4,651,205)
Expected tax at 21% (1,728,033) 21.0  % (976,753) 21.0  %
Permanent differences:
Goodwill impairment 230,606  (2.8) % 45,632  (1.0) %
Intangible amortization (23,824) 0.3  % (37,003) 0.8  %
Other 7,310  (0.1) % 5,169  (0.1) %
State taxes:
Current 20,615  (0.3) % 22,565  (0.5) %
Deferred (379,627) 4.6  % (234,928) 5.1  %
Other items:
Expired net operating losses 130,882  (1.6) % 324,799  (7.0) %
Change in valuation allowance 1,846,721  (22.4) % 920,794  (19.8) %
Deferred tax past year true-up's 15,124  (0.2) % (91,289) 2.0  %
Other (99,159) 1.2  % 43,579  (0.9) %
Income tax provision $ 20,615  (0.3) % $ 22,565  (0.5) %
The components of net deferred tax assets recognized in the accompanying consolidated balance sheets at December 31, 2025 and 2024 are as follows:
  2025 2024
Net operating loss carryforwards $ 13,698,000  $ 12,025,000 
R&D and ITC credit carryforwards 412,000  396,000 
Accrued expenses and other 372,000  267,000 
Intangibles 286,000  370,000 
Leases (29,000) — 
Accounts receivable 102,000  76,000 
Stock options (102,000) 486,000 
Inventory 343,000  279,000 
Property, plant and equipment 530,000  578,000 
Other 1,176,000  464,000 
Deferred tax assets 16,788,000  14,941,000 
Valuation allowance (16,788,000) (14,941,000)
Deferred tax assets, net $ —  $ — 
At December 31, 2025, we had approximately $46,509,000 of federal net operating loss carryforwards ("NOL") of which $245,000 expired as of December 31, 2025, $20,509,658 expire beginning in 2024 through 2039 and $25,999,342 have an indefinite carryforward. In addition, we have $35,705,000 of state net operating losses, expiring at various dates starting in 2026 through 2043.
The Tax Cuts and Jobs Act was enacted on December 22, 2017. A significant provision of the act was to reduce the statutory federal tax rate from 34% to 21%. During 2025, our valuation allowance increased by $1,847,000 and $130,882 of net operating loss carryforwards expired. This increase is affected by the absorption of deferred tax attributes associated with its acquisition of American DG Energy, Inc. along with permanent book to tax differences and provision to return adjustments.
In accordance with the provisions of the Income Taxes topic of the Codification, we have evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets, which are comprised principally of net operating losses. Management has determined that it is more likely than not that we will not recognize the benefits of federal and state deferred tax assets and, as a result, a full valuation allowance has been established for 2024 and 2025, respectively.
    Utilization of the NOL and research and development credit carryforwards are subject to a substantial annual limitation due to ownership changes, as provided by Section 382 of the Internal Revenue Code of 1986, as well as similar state provisions. Ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.
    We acquired American DG Energy, Inc. during 2017, by acquiring 100 percent of the company's stock. Accordingly, utilization of their consolidated and/or separately computed NOL and/or tax credit carryforwards will be subject to an annual limitation under Internal Revenue Code Section 382. Any such limitation may result in expiration of a portion of the NOL or tax credit carryforwards before utilization. The extent of the limitation, and related allocation and impact upon the NOL and credit carryforwards has been determined to be $391,940 per year for a 20 year period at the ADGE level. However, we have sufficient pre-merger NOLs to offset anticipated taxable income for the taxable year ended December 31, 2025 and do not expected to be limited in NOL utilization for the period.
A full valuation allowance has been provided against our loss carryforwards and, if an adjustment is required under Section 382, it would be offset by a corresponding adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if an adjustment were required.
We have not recorded any amounts for unrecognized tax benefits as of December 31, 2025 or 2024.
We file tax returns as prescribed by the tax laws of the jurisdiction in which we operate. In the normal course of business, we are subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. Our tax returns from tax year 2022 are still open for examination for both federal and state jurisdictions.