v3.26.1
INCOME TAXES
 3 Months Ended
Mar. 31, 2026
INCOME TAXES  
INCOME TAXES

NOTE 18 – INCOME TAXES

 

The components of deferred tax assets and liabilities as of March 31, 2026 and December 31, 2025 were approximately as follows:

 

 

 

2026

 

 

2025

 

 

 

 

 

 

 

 

Bad debt

 

$12,000

 

 

$12,000

 

Amortization of ROU lease

 

 

-

 

 

 

36,000

 

Amortization of debt discount

 

 

433,000

 

 

 

433,000

 

Share based payments

 

 

1,295,000

 

 

 

1,295,000

 

Impairment expense

 

 

584,000

 

 

 

584,000

 

Change in fair value of derivative liabilities

 

 

72,000

 

 

 

61,000

 

Other

 

 

12,000

 

 

 

12,000

 

Net operating loss carryforwards

 

 

1,962,000

 

 

 

1,964,000

 

Total deferred tax assets

 

 

4,381,000

 

 

 

4,397,000

 

Less: valuation allowance

 

 

(4,381,000 )

 

 

(4,397,000 )

Net deferred tax asset recorded

 

$-

 

 

$-

 

 

The components of the income tax benefit and related valuation allowance for the three months ended March 31, 2026 and 2025 was approximately as follows:

 

 

 

2026

 

 

2025

 

Current

 

$1,400

 

 

$-

 

Deferred

 

 

 

 

(54,000 )

Total income tax provision (benefit)

 

 

1,400

 

 

(54,000 )

Less: valuation allowance

 

 

(1,400

)

 

 

2,354,000

 

Income tax provision (benefit)

 

$-

 

 

$-

 

 

A reconciliation of the provision for income taxes for the three months ended March 31, 2026 and 2025 as compared to statutory rates was approximately as follows:

 

 

 

2026

 

 

2025

 

Federal income tax benefit - 6.2%

 

$960

 

$(37,000 )

State income tax benefit - 2.3%

 

 

440

 

 

(17,000 )

Subtotal

 

 

1,400

 

 

(54,000)

Change in valuation allowance

 

 

(1,400

) 

 

 

54,000

 

Income tax benefit

 

$-

 

 

$-

 

 

Federal net operating loss carryforwards at March 31, 2026 and December 31, 2025 were approximately $7,008,000 and $7,013,000, respectively.

 

Deferred tax assets and liabilities are computed by applying the federal and state income tax rates in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carry forwards. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences reverse. As a result of historic losses, the Company has recorded a full valuation allowance as of March 31, 2026 and December 31, 2025.

 

During the three months ended March 31, 2026 and 2025, the valuation allowance increased (decreased) by approximately $(1,400) and $54,000, respectfully. The total valuation allowance results from the Company’s estimate of its future recoverability of its net deferred tax assets.

 

The Company has determined that it had a change of control issue for the year ended December 31, 2021, that will limit the future use of the NOL carryforwards of approximately $3,006,000 as of December 31, 2021. As of March 31, 2026, the remaining federal NOL carryforwards of approximately $4,002,000 which were generated after 2017 may only be used to offset 80% of future taxable income and may carried forward indefinitely until fully utilized.

 

The Company follows the provisions of ASC 740, which require the computations of current and deferred income tax assets and liabilities only consider tax positions that are more likely than not (defined as greater than 50% chance) to be sustained if the taxing authorities examined the positions. There are no significant differences between the tax provisions represented in the accompanying financial statements and those reported in the Company's income tax returns.

The Company files corporate income tax returns in the United States and California. Due to the Company's net operating loss posture, all tax years are open and subject to income tax examination by tax authorities. The Company's policy is to recognize interest expense and penalties related to income tax matters as tax expense. As of March 31, 2026 and December 31, 2025, there are no unrecognized tax benefits and there are no accruals for interest related to unrecognized tax benefits or tax penalties.