Axe Compute Inc. Income Taxes Disclosure

NOTE 14 – INCOME TAXES

 

Income taxes paid, net of refunds, disaggregated by jurisdiction are as follows:

 

		Year Ended December 31,
		2025				2024
U.S. Federal		$	-			$	-
U.S. State			-				-
Foreign			-				-
Total income taxes paid (net of refunds)		$	-			$	-

 

Pretax income is entirely related to domestic activities. The Company did not have any foreign operations.

 

The provision for income taxes consists of an amount for taxes currently payable and a provision for tax consequences deferred to future periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

The Company incurred zero income tax expense from continuing operations during the years ended December 31, 2025, and 2024, due to losses in both years.

 

Actual income tax benefit from continuing operations differs from statutory federal income tax expense (benefit) as follows*:

 

		Year Ended December 31,
		2025								2024
Tax computed at the statutory federal rate		$	(48,929,078	)			21.00	%			2,147,178				19.77	%
State income taxes, net of federal benefit (a)			-				0.00	%		$	-				0.00	%
Nontaxable or nondeductible items
Fair value of embedded derivatives			10,287,060				-4.42	%			-				0.00	%
Fair value of equity warrants			3,265,308				-1.40	%			-				0.00	%
Other nontaxable or nondeductible items			9,309				0.00	%			9,183				0.08	%
Other			124,835				-0.05	%			(13,898	)			-0.13	%
Change in valuation allowance			35,242,566				-15.13	%			(2,142,462	)			-19.73	%
Taxes at effective rate		$	-				0.00	%		$	-				0.00	%

 

*Certain prior-period amounts have been recast to reflect the classification of the Company's Eagan business as discontinued operations in 2025. Accordingly, amounts presented, including the effective tax rate reconciliation, reflect continuing operations only.

 

Deferred taxes consist of the following:

 

		December 31, 2025				December 31, 2024
Deferred tax assets:
Compensation accruals		$	99,684			$	42,893
Accruals and reserves			172,188				191,804
Deferred revenue			35,819				80,005
Charitable contribution carryover			1,717				1,742
Unrealized loss on digital assets			39,397,315				-
Intangibles			591,011				696,622
Capitalized R&D			711,632				1,016,330
Lease liabilities			387,395				551,917
Stock-based compensation			570,708				542,609
NOL and credits			27,010,332				24,479,583
Total deferred tax assets			68,977,801				27,603,505
Deferred tax liabilities:
Depreciation			(45,520	)			(31,863	)
Lease right-of-use assets			(369,859	)			(513,256	)
Total deferred tax liabilities			(415,379	)			(545,119	)
Net deferred tax assets			68,562,422				27,058,386
Less: valuation allowance			(68,562,422	)			(27,058,386	)
Total		$	-			$	-

 

The Company evaluates the realizability of deferred tax assets and considers all available evidence, both positive and negative, including historical operating results, projections of future taxable income, reversing taxable temporary differences, and tax planning strategies. The Company has determined based on available evidence, particularly its history of losses, that it is not more likely than not that its net deferred tax asset will be realizable. Accordingly, the Company maintains a full valuation allowance against its net deferred tax asset.

 

Pursuant to the Internal Revenue Code of 1986, as amended (the “Code”) Sections 382 and 383, annual use of a company’s NOL and research and development credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% within a three-year period. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.

 

As of December 31, 2025, the Company had $110,759,174 of NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in 2026, subject to the Section 382 limitations described above. The federal NOLs of $14,857 begin to expire in 2026 if unused and $110,744,317 will carry forward indefinitely. The Company also had $57,161,699 of NOLs to reduce future state taxable income as of December 31, 2025. The state NOLs will begin to expire in 2026 if unused. The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. As of December 31, 2025, the federal and state valuation allowances were $55,645,772 and $12,916,650, respectively.

 

During the year-ended December 31, 2023, the Company completed an assessment of the available NOL and tax credit carryforwards under Section 382 and 383 and determined that the Company underwent several ownership changes during the period from 2008 to 2022. The Company adjusted its NOL and tax credit carryforwards to reflect the limitations resulting from the identified ownership changes. The Company reduced its available gross federal and state NOL carryforwards and the federal and state deferred tax asset, each of which related to losses generated for the years ended December 31, 2022, and prior.

 

During the year-ended December 31, 2025, the Company underwent a Section 382 analysis for the periods presented in the consolidated financial statements and determined that the Company experienced an ownership change (as defined in Section 382) related to its Cash PIPE equity issuance on October 7, 2025. The Company has calculated a preliminary Section 382 base limitation of approximately $435,000 with an aggregate limitation of approximately $4,600,000 over the applicable five-year recognition period after consideration of deemed realized built in gains (RBIG).

 

Tax years after 2005 remain open to examination by federal and state tax authorities due to unexpired NOL carryforwards.

 

The Company reviews income tax positions expected to be taken in income tax returns to determine if there are any income tax uncertainties. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by taxing authorities, based on technical merits of the positions. The Company has identified no income tax uncertainties.

 

The Company recognizes interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense. As of December 31, 2025, and 2024, the Company recorded no accrued interest or penalties related to uncertain tax positions.