Income Taxes |
3 Months Ended |
|---|---|
Mar. 31, 2026 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes |
NOTE 8 — Income Taxes
We recognized income tax expense of $2,538 for the three months ended March 31, 2026, which includes $2,499 of discrete tax expense related to the sale of the Company’s legacy business assets. We recognized income tax expense of $132 for the three months ended March 31, 2025 which includes $9 of discrete tax expense.
Our tax expense for discontinued operations for the three months ended March 31, 2026 is higher than our tax expense for the same period last year due to the sale of the Company’s phone and hotspot assets on January 23, 2026. Tax expenses for the first quarter of 2026 are included in discontinued operations because they primarily relate to the sale of the assets and the gain on the sale of the assets is included in discontinued operations.
Our effective tax rate is 64.61% for the three months ended March 31, 2026, compared to 13.74% in the same period last year. This effective tax rate is calculated by dividing total tax expense for the Company by the loss from continuing operations. Our effective rate is higher than the U.S federal statutory tax rate primarily due to us not matching the taxes on the asset sale with the income from the asset sale in the calculation.
The Company’s material income tax jurisdictions are the United States (federal and California), China and India. As a result of net operating loss and credit carryforwards, the Company is subject to audit for tax years 2023 and forward for federal and California purposes. The China and India tax years are open under the statute of limitations from 2013 and forward.
It is projected that the Company will utilize $8 million of U.S. federal net operating loss carryovers in 2026 to partially offset the projected 2026 U.S. federal taxable income resulting from the Company’s Q1 2026 asset sale. It is projected that the Company will have $5.2 million of U.S. federal net operating loss carryovers at the end of 2026. As of March 31, 2026, the Company has a full valuation allowance on all of its U.S. federal and state deferred tax assets.
The Company’s material income tax jurisdictions are the United States (federal and California), China and India. As a result of net operating loss and credit carryforwards, the Company is subject to audit for tax years 2023 and forward for federal and California purposes. The China and India tax years are open under the statute of limitations from 2013 and forward.
The Company is subject to ongoing tax examinations of its tax returns by the Internal Revenue Service and other tax authorities in various jurisdictions. In accordance with the guidance on the accounting for uncertainty in income taxes, the Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. These assessments can require considerable estimates and judgments. As of March 31, 2026, the gross amount of unrecognized tax benefits was approximately zero. If the Company’s estimates of income tax liabilities prove to be less than the ultimate assessment, then a further charge to expense would be required. If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period in which we determine the liabilities are no longer necessary. The Company does not anticipate any material changes to its uncertain tax positions during the next twelve months.
All of the tax expense for the three months ended March 31, 2026 and March 31, 2025 are included in discontinued operations.
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