INCOME TAXES |
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| INCOME TAXES | NOTE 9 — INCOME TAXES
The Company accounts for income taxes under the asset and liability method of ASC 740. Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate primarily to net operating loss carryforwards and accrued officer compensation that is deductible when paid.
The Company had no current or deferred income tax provision for any period presented. A reconciliation of the income tax benefit computed at the federal statutory rate to the income tax provision is as follows:
The components of the Company’s net deferred tax assets are as follows:
The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The Company has a history of losses and had no revenue-generating operations at December 31, 2025, and accordingly has determined that a full valuation allowance against its net deferred tax assets is required. The valuation allowance increased by $123,737 during the Transition Period, of which $88,559 relates to the benefit of the loss for the period and the remainder primarily to the treatment of research and development costs. Deferred tax assets were calculated using the Company’s combined federal and state statutory rate of approximately 28%. The effective rate is reduced to 0% by the full valuation allowance.
At December 31, 2025, the Company had federal net operating loss carryforwards of approximately $1,362,000, which can be carried forward indefinitely but the use of which is limited to 80% of taxable income in any year, and state net operating loss carryforwards of a similar amount that expire beginning in 2043. At June 30, 2025, federal net operating loss carryforwards were approximately $1,065,000. Section 382 of the Internal Revenue Code limits the amount of net operating loss carryforwards that can be utilized annually following an ownership change of more than 50 percentage points among five-percent stockholders over a three-year period. Management has not completed a Section 382 study and has not determined the extent of any resulting limitation; because the Company’s deferred tax assets are fully reserved, any limitation would not affect the Company’s financial position or results of operations.
The Company has evaluated its income tax positions and has determined that it does not have any uncertain tax positions. The Company will recognize interest and penalties related to any uncertain tax positions through its income tax expense. The Company is subject to taxation in the United States and California, is not presently subject to any income tax audit in any taxing jurisdiction, and all tax years from inception remain open to examination. The change in fiscal year end requires the Company to file a short-period federal income tax return for the period from July 1, 2025 to December 31, 2025. Beginning with the quarter ended June 30, 2026, the Company’s consolidated income tax provision also includes the Philippine income taxes of Flipside AI, which is registered with the Philippine Economic Zone Authority and benefits from the incentives available under that registration. |
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