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INCOME TAXES
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES

11. INCOME TAXES

 

The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to reverse or such carryforwards are expected to be utilized.

 

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not expected to be realized.

 

The components of income tax benefit for the years ended December 31, 2025, and 2024 are as follows:

 

Income Tax Expense (Benefit) 

Year Ended

December 31,
2025

  

Year Ended

December 31,
2024

 
Current tax payable          
Federal  $-   $- 
State   -    - 
Total current tax payable   -    - 
Deferred tax          
Federal   (1,998,000)   30,000 
State   (264,000)   3,000 
Total deferred tax   (2,262,000)   33,000 
Less increase in valuation allowance   (318,000)   - 
Total income tax (benefit) expense  $(2,580,000)  $33,000 

 

Individual components of deferred tax assets and liabilities are approximately as follows:

 

Deferred Tax Assets & Liabilities:        
Deferred Tax assets:          
Impairment of investment  $1,050,000   $929,000 
Research & development cost   -    519,000 
Compensation   36,000    18,000 
Net Operating loss   4,344,000    2,950,000 
Gross deferred tax assets   5,430,000    4,416,000 
           
Deferred tax liability:          
Note payable, related party FMV adjustment   -    (1,148,000)
Intangible assets   (3,744,000)   (3,912,000)
Gross deferred tax liability   (3,744,000)   (5,060,000)
           
Less valuation allowance   (2,374,000)   (2,625,000)
Net deferred tax liability  $(688,000)  $(3,269,000)

 

  $ -      $ -    
   2025   2024 
Statutory United States federal rate  $ (3,028,000 )    21.0%  $ (5,240,000 )    21.0%
State income taxes effective rate change  $ 66,000      -0.5%  $ -      

0.0

%
State income taxes net of federal benefit  $ (208,000 )    1.4%  $ 3,000      

0.0

%
Permanent differences  $ 908,000      

-6.3

%  $ 5,270,000      

-21.1

%
Change in valuation allowance  $ (318,000 )    2.2%  $ -      

0.0

%
                         
Effective rate  $ (2,580,000 )    17.9%  $ 33,000      -0.1%

 

As of December 31, 2025, and 2024, the Company has net operating loss carry forwards of approximately $18,702,000 and $13,020,000 respectively. The Company does not have other temporary differences associated with the amortization of intangible assets. As of December 31, 2025, and 2024, the total deferred tax assets carry-forward were $5,430,000 and $4,416,000, respectively. The deferred tax assets could be carried forward indefinitely. The full utilization of the deferred tax assets in the future is dependent upon the Company’s ability to generate taxable income. Considering the development stage of the Company, management believed that it was probable that the Company would not use the entirety of its tax assets in the near future. Accordingly, a valuation allowance of approximately $2,374,000 has been established.

 

The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2025 and 2024 the Company recognized no interest and penalties.