Note 7 – Income Taxes

The Company’s income tax (benefit)/provision is as follows for the years ended December 31, 2025 and 2024:

Schedule of Income Tax (Benefit)/Provision  

ASU 2023-09 requires disaggregation of pretax income (loss), income tax expense (benefit), and income taxes paid by jurisdiction. The Company has no foreign operations; accordingly, all pretax income (loss) is domestic (United States).

The following table shows the components of loss before income taxes and the related income tax expense / (benefit):

Schedule of Components of Loss Before Income Taxes

For the years ended December 31, 2025 and 2024 there were no income taxes paid. As no income taxes were paid, disaggregation by U.S. federal, state, or foreign jurisdictions was not applicable for the period presented. 

The reconciliation of income taxes using the statutory U.S. income tax rate and the benefit from income taxes for the years ended December 31, 2025 and 2024 are as follows:

Schedule of Reconciliation of Income Tax Rate and Benefit from Income Taxes  

As of December 31, 2025, and 2024, the Company had U.S. federal net operating loss carry forwards of $123,715,103 and $116,475,704, respectively. $43,262,318 of the U.S. federal net operating loss generated in tax years beginning before January 1, 2018 expire beginning with the year ending December 31, 2026 through 2037. The remaining U.S. federal net operating loss of $80,452,785 does not expire, however it is limited to 80% of each subsequent year’s net income. As of December 31, 2025, and 2024, the Company had U.S. state net operating loss carry forwards of $58,300,567 and $55,721,156, respectively, some of which expire beginning with the year ending December 31, 2026 through 2045. U.S. federal net operating losses of $3,873,308 expired during 2025. The timing and manner in which the Company can utilize operating loss carryforwards in any year may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations. Such limitation may have an impact on the ultimate realization of its carryforwards and future tax deductions.

Under Section 382 of the Code, use of the Company’s net operating loss carryforwards is limited if the Company experiences a cumulative change in ownership of greater than 50% in a moving three-year period. The Company experienced an ownership change as a result of the Merger and therefore the Company’s ability to utilize its net operating loss and certain credit carryforwards are limited. The limitation is determined by the fair market value of the Company’s common stock outstanding immediately prior to the ownership change, multiplied by the applicable federal rate. It is expected that the Merger caused the Company’s net operating loss carryforwards to be limited. However, the limitation had no impact on the Company’s financial statements since the Company recorded a full valuation allowance for the deferred tax assets as of December 31, 2025 and 2024.

The principal components of the deferred tax assets and liabilities, and related valuation allowances as of December 31, 2025 and 2024 are as follows:

Schedule of Deferred Tax Assets and Related Valuation Allowances  

The valuation allowance for deferred tax assets increased / (decreased) by $1,606,119 during the year ended December 31, 2025, related to the U.S. federal and state jurisdictions in the amounts of $2,055,712 and $(449,592), respectively. The increase in the U.S. federal valuation allowance was mainly due to increases in the Company’s gross deferred tax asset related to increases in the cumulative deductible temporary differences including the net operating loss carryforward. The (decrease) in the U.S. state valuation allowance was mainly due to changes in the statutory state tax rate due to changes in state apportionment factors.

The valuation allowance increased by $5,446,000 during the year ended December 31, 2024, related to the U.S. federal and state jurisdictions in the amounts of $3,691,039 and $1,755,247, respectively, due to increases in the Company’s gross deferred tax asset related to increases in the cumulative deductible temporary differences including the net operating loss carryforward.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets may be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating losses and temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment.

The Company evaluated the provisions of ASC 740-10 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740-10 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740-10.

During 2025, the Company recorded an unrecognized tax benefit of $205,459 related to timing differences. If the position is resolved unfavorably, the related net operating loss carryforward could be reduced; however, the Company expects a corresponding future tax deduction for the underlying timing difference. Accordingly, resolution of this position would not change total gross deferred tax assets and, while the Company maintains a full valuation allowance, would not affect the effective tax rate.

The Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of general and administrative expense. There were no amounts accrued for penalties and interest for the years ended December 31, 2025 and 2024. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

The Company files U.S. federal income tax returns and various state income tax returns. Since the Company had losses in the past, all prior years that generated net operating loss carryforwards are open and subject to audit examination in relation to the net operating loss generated from those years.