AUDIOEYE INC Income Taxes Disclosure

NOTE 9 — INCOME TAXES

For the years ended December 31, 2025 and 2024, federal and state income tax expense totaled zero.

The Company has net operating loss carryforwards available to reduce future taxable income. At December 31, 2025, the Company had U.S. federal net operating loss carry forwards of $61,001,000, of which (i) $14,235,000 expire at various dates through fiscal 2037, and (ii) $46,766,000 were generated in or after 2018 and can be carried forward indefinitely but will only be able to offset up to 80% of taxable income in any given year. Future tax benefits for these net operating loss carryforwards are recognized to the extent that realization of these benefits is considered more likely than not. To the extent that the Company will not realize a future tax benefit, a valuation allowance is established. At December 31, 2025, the Company had foreign net operating loss carry forwards of approximately $1,139,000 associated with an asset acquisition.

At this time, the Company is unable to determine if it will be able to benefit from its deferred tax asset. There are limitations on the utilization of net operating loss carryforwards, including a requirement that losses be offset against future taxable income, if any. In addition, utilization of the U.S. federal and state NOL carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income or tax liabilities. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. Accordingly, our U.S. federal and state net deferred tax asset was zero as of December 31, 2025 and 2024 as the Company established a full valuation allowance on of $19,998,000 and $19,090,000, respectively.

Significant components of our deferred tax assets and liabilities as of December 31, 2025 and 2024 consist of the following:

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The following table reconciles the statutory U.S. corporate federal income tax rate to the Company’s effective tax rate:

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The Company is subject to U.S. federal income tax as well as income taxes in multiple state and local jurisdictions. The Company has concluded all U.S. federal tax matters for years through December 31, 2021. All material state and local income tax matters have been concluded for years through December 31, 2020. The Company is no longer subject to IRS examination for the tax years ended on or before December 31, 2021; however, carryforward losses that were generated through the tax year ended December 31, 2021 may still be adjusted by the IRS if they are used in a future period. The Company had no reserve for uncertain tax positions as of December 31, 2025 and 2024.