Lunai Bioworks Inc. Income Taxes Disclosure

NOTE 9 — INCOME TAXES

 

The Company accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes; which requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which cannot be determined.

 

As of June 30, 2025 and 2024, the Company had net operating loss carryforwards of approximately $541,603,425 and $489,177,759 respectively, giving rise to deferred tax assets of $76,296,814 and $144,191,530, respectively. The net operating loss carryforwards generated prior to January 1, 2018 expire over various dates from 2031 to 2038. All subsequent net operating loss carryforwards are indefinite.

 

The Company files Danish and U.S. income tax returns and these returns are generally no longer subject to tax examinations for years prior to 2021 for the Danish tax returns and 2022 for the U.S. tax returns.

 

The temporary differences, tax credits and carry forwards gave rise to the following deferred tax assets (liabilities) at June 30, 2025 and 2024:

 

Schedule of deferred tax assets and liabilities
		June 30
		2025				2024
Depreciation		$	(24,619	)		$	8,258
Excess of tax over book depreciation of patents			—				8,415
Stock/options compensation			463,099				6,672,252
Depreciation and amortization			—				188,422
Net operating loss carryforwards			76,296,814				148,832,041
Impairment expense			—				16,188,497
Contingent consideration fair value			—				(909,577	)
Amortization			1,961,747				—
Section 174 R&E Capitalization			3,292,075				—
ROU Assets and Lease Liabilities			14,227				—
Section 481(a) Adjustment			(40,895	)			—
R&D Tax Credits			1,718,415				—
Change in tax rate			—				—
Valuation allowance			(83,680,863	)			(170,988,308	)
Total Deferred Tax Assets (Liabilities)		$	—			$	—

 

In accordance with prevailing accounting guidance, the Company is required to recognize and disclose any income tax uncertainties. The guidance provides a two-step approach to recognizing and measuring tax benefits and liabilities when realization of the tax position is uncertain. The first step is to determine whether the tax position meets the more-likely-than-not condition for recognition, and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company’s future earnings, and other future events, the effects of which can be difficult to determine and can only be estimated. Management estimates that it is more likely than not that the Company will not generate adequate net profits to use the deferred tax assets; and consequently, a valuation allowance was recorded for all deferred tax assets.

 

A reconciliation of income tax expense at the federal statutory rate to income tax expense at the Company’s effective rate is as follows for the years ended June 30, 2025 and 2024:

 

		Years ended June 30,
		2025				2024
Computed tax at expected statutory rate		$	(951,542	)		$	(24,066,011	)
Non-US income taxed at different rates			—				—
Non-deductible expenses / other items			(2,046,364	)			—
Valuation allowance			2,999,380				24,066,011
Income Tax Expense (Benefit)		$	1,474			$	—

 

The components of income tax expense (benefit) from continuing operations for the years ended June 30, 2025 and 2024 consisted of the following:

 

Schedule of components of income tax expense (benefit) from continuing operations
		Years ended June 30,
		2025				2024
Current Income Tax Expense
Federal income tax (benefit)			—				—
State income tax (benefit)			1,474				—
Foreign income tax (benefit)		$	—			$	—
Total Current Tax Expense (Benefit)		$	1,474			$	—
Deferred Income Tax Expense Federal income tax (benefit)			101,609,457				165,458,980
State income tax (benefit)			(14,302,006	)			5,529,328
Foreign income tax (benefit)			—				—
Change in valuation allowance			(87,307,451	)			(170,988,308	)
Total Deferred Tax Expense			—				—
Total Tax Expense			1,474				—

 

Deferred income tax expense (benefit) results primarily from the reversal of temporary timing differences between tax and financial statement income.