Rocket One Inc. Income Taxes Disclosure

NOTE 9 – Income Taxes

The table below presents the components of the provision for taxes:

For the years ended December 31, 2025 and 2024, the components of loss before income taxes were as follows:

The Company’s provision is primarily driven by the full valuation allowance in 2025 and 2024.

The following table reconciles the U.S. federal statutory income tax rate to the Company’s effective income tax rate for the year ended December 31, 2025:

As previously disclosed for the year ended December 31, 2024, prior to the adoption of ASU 2023-09, the effective income tax rate differed from the federal statutory income tax rate as follows:

At December 31, 2025 and 2024, the tax effects of the temporary differences and carryforwards that give rise to deferred tax assets consist of the following:

The Company has determined, based upon available evidence, that it is more likely than not that the net deferred tax assets will not be realized and, accordingly, has provided a full valuation allowance against its net deferred tax assets.

As of December 31, 2025 and 2024, the Company has Federal net operating loss carryforwards of approximately $58,700,000 and $42,000,000, respectively, available to reduce future taxable income, if any, for Federal tax purposes. Approximately $1,500,000 of Federal net operating losses can be carried forward to future tax years and expire in 2037. The Federal net operating loss generated during the years ended after December 31, 2017 of approximately $57,200,000 can be carried forward indefinitely; however, the deduction for net operating losses incurred in tax years beginning after January 1, 2018 is limited to 80% of annual taxable income. In addition, the Company had approximately $683,000 and $613,000 of net operating losses at its subsidiary located in Australia, as of December 31, 2025 and 2024, respectively.

On July 4, 2025, the OBBBA was enacted into law by the United States Congress, which included among other provisions the restoration of immediate expensing of domestic research and experimental (“R&E”) expenditures under Section 174. Pursuant to the OBBBA’s transition rules, the Company elected to expense all unamortized domestic R&E costs previously capitalized between 2022 and 2024. The Company continues to evaluate various elections available to the Company under OBBBA related to IRC Section 174 capitalized R&D costs. The effect of expensing of all unamortized domestic R&E was to decrease the Company’s deferred tax assets and decrease the related valuation allowance. Because of the Company’s loss and full valuation allowance, there was no impact on the Company’s 2025 financial statements related to IRC Section 174 capitalized R&D costs the 2025 year.

As required by the 2017 Tax Cuts and Jobs Act, effective in 2022, and the OBBBA, deferred tax asset as of December 31, 2025 and 2024 still includes the mandatory capitalization of foreign research and development expenses.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA increased and modified the qualified small business (“QSB”) payroll tax credit for increasing research activities. Provision 13902 of the IRA of 2022 increased the maximum amount of payroll tax research credit that a QSB can elect to apply against payroll tax liability from $250,000 to $500,000 for tax years beginning after December 31, 2022. This payroll tax credit is a creditable tax credit against the employer’s portion of social security taxes, and the IRA also modified IRC 3111(f) to allow a portion of the payroll tax credit to apply against the employer’s portion of Medicare tax. For the year ended December 31, 2023, the Company recorded approximately $47,000 of other income for the payroll tax credit and $200,000 is still outstanding. The remaining research credit carryforward of $0.2 million will be utilized in the future as an offset against payroll taxes at the time the payroll tax is incurred.

The utilization of the Company’s net operating loss carryforwards and research tax credit carryovers could be subject to annual limitations under Section 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), and similar state tax provisions, due to ownership change limitations that may have occurred previously or that could occur in the future. These ownership changes limit the amount of net operating loss carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383 of the Code, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percent points over a three-year period. The Company has not conducted an analysis of an ownership change under Section 382 of the Code. To the extent that a study is completed and an ownership change is deemed to occur, the Company’s net operating losses and tax credits could be limited.

At December 31, 2025 and 2024, the Company did not have any significant uncertain tax positions. The Company will recognize interest and penalties related to uncertain tax positions, as applicable, in income tax expense. As of December 31, 2025 and 2024, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months.

All of the Company’s tax years will remain open for examination by the Federal and state tax authorities from the date of utilization of the net operating loss.

Management asserts that its foreign earnings are permanently reinvested, and therefore, have not provided deferred taxes on foreign cash. Additionally, no additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis differences inherent in our foreign subsidiaries, as these amounts continue to be indefinitely reinvested in foreign operations. The Company will continue to monitor the foreign cash position as they maintain the assertion that foreign earnings are permanently reinvested.