v3.26.1
Income Tax
 3 Months Ended
Mar. 31, 2026
Income Tax [Abstract]  
INCOME TAX

10. INCOME TAX

 

Total income tax (benefit) expense consists of the following:

 

For the Three Months March 31,   2026    2025 
           
Current provision (benefit):          
Federal  $
-
   $
-
 
State   
-
    
-
 
Total current provision (benefit)   
-
    
-
 
           
Deferred provision (benefit):          
Federal   
-
    
-
 
State   
-
    
-
 
Total deferred provision (benefit)   
-
    
-
 
           
Total tax provision (benefit)  $
-
   $
-
 

A reconciliation of the Company’s effective tax rate to the statutory federal rate for the nine months ended March 31, 2026 and 2025 is as follows:

 

Description  March 31,
2026		   March 31,
2025		 
         
Statutory federal rate   21.00%   21.00%
State income taxes net of federal income tax benefit and others   6.98%   6.98%
Permanent differences for tax purposes and others   0.00%   0.00%
Change in valuation allowance   (27.98)%   (27.98)%
Effective tax rate   0.00%   0.00%

 

The income tax benefit differs from the amount computed by applying the U.S. federal statutory tax rate of 21% due to California state income taxes of 8.84% and changes in the valuation allowance.

 

Deferred income taxes reflect the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax assets and liabilities are as follows:

 

December 31,  March 31, 2026   December 31, 2025 
         
Deferred tax assets:        
Net operating loss  $6,863,965   $6,863,965 
Bad debt reserve   22,586    22,586 
Basis difference in fixed assets   332,510    332,510 
Operating lease liabilities   666,142    666,142 
State taxes   7,153    7,153 
Total Deferred tax assets   7,892,355    7,892,355 
Deferred tax liabilities:          
Operating lease right-of-use asset   (644,804)   (644,804)
Total Deferred tax liabilities   (644,804)   (644,804)
Net deferred tax assets   7,247,551    7,247,551 
Less – valuation allowance   (7,247,551)   (7,247,551)
           
Total deferred tax assets, net of valuation allowance  $
-
   $
-
 

 

The Company uses the liability method of accounting for income taxes as set forth in ASC 740. Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. As of December 31, 2025, the Company had federal and State net operating loss carryforwards of approximately $25.2 million and $17.8 million, respectively. Under the new tax law, the Federal net operating loss arising in tax years ending after December 31, 2017, will be carried forward indefinitely. The Company has pre-tax reform federal net operating loss carryforwards in the amount of approximately $2.0 million as of March 31, 2026. Net operating loss carryforwards arising tax years ending after December 31, 2017, are approximately $23.2 million. The state net operating loss carryforwards will begin to expire in 2042.

As of March 31, 2026 and December 31, 2025, the Company maintained full valuation allowance for net operating loss carryforward deferred tax asset. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The amount of the deferred tax asset considered realizable, however, could be reduced if estimates of future taxable income are reduced.

 

The Company files a federal income tax return and files tax returns in state and local jurisdictions. The statutes of limitations for its federal income tax returns are open for years 2022 and after, and state and local income tax returns are open for years 2021 and after.