PEDEVCO CORP Income Taxes Disclosure

NOTE 17 – INCOME TAXES

The components of the income tax expense (benefit) for each of the periods presented below are as follows:

A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows, in accordance with the updated requirements of ASU 2023-09 for the years ended December 31, 2025 and December 31, 2024:

In 2025, the Company recorded a $8.1 million tax expense primarily due to the valuation allowance recorded against deferred taxes in 2025.

Deferred income taxes are provided to reflect temporary differences in the tax basis of assets and liabilities and their reported amounts in the financial statements. The tax-effected temporary differences and net operating loss (“NOL”) carryforwards that comprise our deferred income taxes are as follows:

As of December 31, 2025 and 2024, we had net deferred tax liabilities of $0.8 million and net deferred tax assets of $7.3 million, respectively, upon which we had a valuation allowance of $8.5 million and $0 million, respectively. The net change in the valuation allowance of $8.5 million is due to the recording of the valuation allowance on deferred tax assets that are not more-likely-than-not to be realized. The change in the conclusion regarding the valuation allowance at December 31, 2025, compared to December 31, 2024, primarily relates to the operational impact of the companies acquired in the fourth quarter of 2025. The Company concluded that, due to the lack of operating history, projections of future taxable income are not available to support the valuation allowance assessment as of December 31, 2025, whereas such projections were available as of December 31, 2024.

As of December 31, 2025, the Company has federal net operating loss carryforwards of approximately $69.2 million, which if not utilized, approximately $16.0 million will begin expiring in 2025 and ending 2037, respectively.  The remaining net operating losses can be carried forward indefinitely and are subject to an 80% taxable income limitation.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all deferred assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Utilization of NOL and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code (the “Code”), as amended, as well as similar state provisions. In general, an “ownership change” as defined by the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain shareholders or public groups.

Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable based on the Company's ability to generate income in future periods. Accordingly, management has recorded a valuation allowance of $8.5 million against its net deferred tax assets on December 31, 2025.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2025, and 2024, the Company did not have any significant uncertain tax positions or unrecognized tax benefits. The Company did not have associated accrued interest or penalties, nor was any interest expense or penalties recognized for the years ended December 31, 2025, and 2024.

              With the adoption of ASU 2023-09, Income Taxes, a disclosure of income taxes paid, net of refunds received, to an individual taxing jurisdiction is now required if the net payments exceed a certain threshold.  The Company did not have any income tax payments or refunds for both periods ending December 31, 2025 and December 31, 2024.

The Company currently has tax returns open for examination by the Internal Revenue Service for all years, since 2019.