11 —INCOME TAX

(a) Income Tax Expense

The Company conducts business both domestically and internationally and, as a result, the parent company and most of its subsidiaries file a consolidated income tax return in U.S. federal, U.S. states and U.S. Cities, and one of the subsidiaries files a foreign income tax return in certain foreign jurisdictions.

The Company will file a consolidated annual U.S. federal tax return for tax year ending March 31, 2026, as well as combined tax returns for New Jersey, New York State, Florida, Texas, California, District of Columbia, Massachusetts, Maryland, and New York City. Most subsidiaries of the Company were incorporated in the State of New York and are subject to the U.S. federal corporate income taxes with a tax rate of 21.0%. The State of New York levies a corporate income tax rate of 8.45% on state-level earnings. In addition, a sum of fixed dollar minimum taxes is imposed on the taxable group members, in accordance with their gross receipts within the State of New York. The City of New York levies a 6.50% city corporate income tax, along with a sum of fixed dollar minimum taxes, applied to taxable group members based on their gross receipts within the city. Five of the Company’s subsidiaries are located in New Jersey, which imposes a state income tax rate of 9.0%. Two of the Company’s subsidiaries is located in Florida, which imposes a state income tax rate of 5.5%. Two subsidiaries of the Company are located in Texas, which imposes a state income tax rate of 0.75% on the appointed state revenue. One of the Company’s subsidiaries is located in California, which imposes a state income tax rate of 8.84%. One of the Company’s subsidiaries is located in District of Columbia, which imposes a state income tax rate of 8.25%. One of the Company’s subsidiaries is located in Massachusetts, which imposes a state income tax rate of 8.25%. One of the Company’s subsidiaries is located in Maryland, which imposes a state income tax rate of 8.00%.

The Company’s wholly owned foreign subsidiary in Canada will file a Canadian federal tax return for tax year ending March 31, 2026, as well as Ontario state tax return. It is subject to the Canadian federal corporate income taxes with a tax rate of 15.0% and Ontario state corporate income taxes with a tax rate of 11.5%.

Income tax on unappropriated earnings is accrued during the period the earnings arise and adjusted to the extent that distributions are approved by the stockholders in the following year.

Income tax expense for the years ended March 31, 2026 and 2025 amounted to $0.33 million and $0.34 million, respectively. Significant components of the provision for income taxes are as follows:

The provision for income taxes is based on the following pretax income (loss):

For the years ended March 31, 2026, the total pre-tax loss was $8.9 million, which included $9.9 million pre-tax loss in the U.S. and $1.0 million pre-tax income in Canada. For the years ended March 31, 2025, the total pre-tax loss was $4.9 million, which included $4.7 million pre-tax loss in the U.S. and $0.2 million pre-tax loss in Canada.

The following table reconciles to the Company’s effective tax rate:

Penalties and interest incurred related to underpayment of income tax are classified as income tax expenses in the period incurred. For the years ended March 31, 2026 and 2025, the Company accrued $33,464 and $30,301 of income tax related penalty included in current income taxes expenses, respectively.

United States

Income tax expense for the year ended March 31, 2026 and 2025 amounted to $0.21 million and $0.40 million, respectively.  

Significant components of the provision for income taxes are as follows:

Canada

Fly Toronto Corp, a subsidiary of the Company, was formed under the laws of Canada and conducts its business primarily in Canada.

Income tax loss for the year ended March 31, 2026 and income tax benefit 2025 amounted to $122,893 and $59,829, respectively. Significant components of the provision for income taxes are as follows:

(b) Deferred Tax Assets (Liabilities)

Net DTAs as of March 31, 2026 and 2025 amounted to nil and $94,983, respectively. Significant components of DTAs (DTLs), net are as follows:

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. As of March 31, 2026 and 2025, the Company recorded approximately $nil and $94,983, respectively, in the net DTAs. As of March 31, 2026, management considered it more likely than not that the Company will have sufficient taxable income in the future that will allow the Company to realize these net DTAs.

As a result of the Tax Cuts and Jobs Act (TCJA), US NOLs arising after December 31, 2017, may be carried forward indefinitely and can offset only up to 80% of taxable income in any future year. Based upon the Company’s recent taxable loss history, the Company performed an analysis and determined that it was necessary to establish a valuation allowance of $4,037,000 with respect to its net deferred income tax assets as of and for the fiscal year ended March 31, 2026.

Uncertain Tax Positions

The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of March 31, 2026 and 2025, the Company did not have any significant unrecognized uncertain tax positions.