Skye Bioscience, Inc.SKYE
Skye Bioscience, Inc. Income Taxes Disclosure
Income Taxes
The components of loss before the income tax provision consist of the following:
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| United States | $ | (56,242,571) | $ | (27,495,672) | |||||||
| Foreign | 323,157 | 938,620 | |||||||||
Pre-tax loss from operations | $ | (55,919,414) | $ | (26,557,052) | |||||||
The components of the income tax expense consisted of the following:
| Year Ended December 31, | |||||||||||
| Current income tax expense | 2025 | 2024 | |||||||||
| Federal | $ | — | $ | — | |||||||
| State | 5,400 | 10,071 | |||||||||
| Foreign | — | — | |||||||||
| Total current income tax expense | $ | 5,400 | $ | 10,071 | |||||||
The Company is subject to taxation in the United States, various states, Australia, and Canada. The Company’s tax years for 2022 (federal), 2021 (States), 2021 (Australia) and 2021 (Canada) and forward are subject to examination by the United States, state, Australian, and Canadian tax authorities. However, to the extent allowed by law, the taxing authorities may have the right to examine periods where NOLs and credits were generated and carried forward and make adjustments up to the amount of the NOL and credit carryforwards. The Company is not currently under examination by any jurisdiction.
At December 31, 2025, the Company had federal and state NOLs aggregating $159,062,533 and $188,066,339, respectively. If not used, $46,622,953 of Federal NOLs and $188,066,339 of state NOLs will begin to expire in 2031, $112,439,580 of federal NOLs will carry forward indefinitely subject to an 80% limitation against taxable income. At December 31, 2025, the Company had Australia NOLs aggregating $453,074 which do not expire and $43,879,070 of Canadian NOLS which begin to expire in 2026.
At December 31, 2025, the Company had Canadian capital loss carryforwards of approximately $35,277,475 which may be carried forward indefinitely.
At December 31, 2025, the Company had federal and California research credit carryforwards of $6,156,218 and $2,445,548, respectively. The federal research credit carry forwards will begin to expire in 2027, unless previously utilized. The California research credits will carry forward indefinitely. The Company’s NOLs and research credit carryforwards are subject to a reserve. Additionally, the Company had Canadian SR&ED credits as of December 31, 2025 of $909,791 which may be carried forward indefinitely.
Utilization of the domestic NOL's and research credits could 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 Section 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state provisions. These ownership changes may limit the amount of NOLs and credits that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders.
Upon the occurrence of an ownership change under Section 382 as outlined above, utilization of the NOLs and credits are subject to an annual limitation under Section 382 of the Code, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOLs and credits before utilization. While the Company has not performed a Section 382 study, multiple ownership changes may have already occurred as the Company raised capital through the issuance of stock. However, due to the existence of the valuation allowance for deferred tax assets, any potential change in ownership will not impact the Company’s effective tax rate.
The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred income tax assets as of December 31, 2025 and December 31, 2024 are as follows:
| As of December 31, | |||||||||||
| Current deferred tax assets and (liabilities): | 2025 | 2024 | |||||||||
| Net operating loss | $ | 50,218,210 | $ | 41,627,022 | |||||||
| Capital loss carryforwards | 9,348,531 | 14,986,412 | |||||||||
| Contingent legal accrual | 434,504 | 381,938 | |||||||||
| Depreciation | 42,221 | 477,024 | |||||||||
| Amortization | 2,298 | 2,606 | |||||||||
| Research and development credits | 4,953,892 | 4,112,293 | |||||||||
| Capitalized research and development costs | 7,101,851 | 4,708,931 | |||||||||
| Lease liability | 57,466 | 95,674 | |||||||||
| State taxes | 714 | 1,092 | |||||||||
Stock-based compensation | 1,899,512 | 1,174,967 | |||||||||
| Other | 331,584 | 270,088 | |||||||||
| Gross deferred tax assets | 74,390,783 | 67,838,047 | |||||||||
| Valuation allowance | (74,334,787) | (67,743,575) | |||||||||
| Net deferred tax assets | $ | 55,996 | $ | 94,472 | |||||||
| Deferred tax liabilities | |||||||||||
| Right-of-use asset | $ | (55,996) | $ | (94,472) | |||||||
| Total deferred tax liabilities | (55,996) | (94,472) | |||||||||
| Net deferred tax assets | $ | — | $ | — | |||||||
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income (loss) from continuing operations before income taxes after the adoption of ASU 2023-09 is as follows:
| As of December 31, 2025 | |||||||||||
| Tax at Statutory Rate | (11,743,077) | 21.00 | % | ||||||||
| State and local income tax, net of federal income tax effect [a] | 4,265 | (0.01) | % | ||||||||
| Tax credits | (695,831) | 1.24 | % | ||||||||
| Change in valuation allowance | 11,477,094 | (20.52) | % | ||||||||
| Nondeductible executive compensation under 162(m) | 740,965 | (1.33) | % | ||||||||
| Other | 175,360 | (0.31) | % | ||||||||
| Nontaxable or nondeductible items, Total | 916,325 | (1.64) | % | ||||||||
| Foreign tax effects | |||||||||||
| Canada | |||||||||||
| Change in valuation allowance | (5,030,006) | 9.00 | % | ||||||||
| Change in foreign currency valuation | (1,057,734) | 1.89 | % | ||||||||
| Capital loss carryforwards no longer available | 6,089,631 | (10.89) | % | ||||||||
| Other | (78,645) | 0.14 | % | ||||||||
| Other foreign jurisdictions | 8,892 | (0.02) | % | ||||||||
| Foreign tax effects, Total | (67,862) | 0.12 | % | ||||||||
| Other | 114,486 | (0.20) | % | ||||||||
| Total | $ | 5,400 | (0.01) | % | |||||||
[a] The State of California comprises greater than 50 percent of the state tax expense for the period ended December 31, 2025.
The provision for income taxes on earnings subject to income taxes differs from the statutory Federal rate at December 31, 2024, due to the following:
As of December 31, | ||||||||
| 2024 | ||||||||
| Expected income tax benefit at federal statutory tax rate | $ | (5,576,981) | ||||||
| State income taxes, net of federal benefit | (1,871,588) | |||||||
| Change in valuation allowance | 2,522,618 | |||||||
| Uncertain tax positions | 2,562,991 | |||||||
| Reduction in deferreds upon divestiture | 839,873 | |||||||
| Stock compensation | (46,422) | |||||||
| Research and development credits | (1,374,591) | |||||||
| Rate adjustment | 6,070 | |||||||
| Foreign rate differential | 2,396,433 | |||||||
162(m) officers compensation | 460,853 | |||||||
| Other | 90,815 | |||||||
| Provision for income taxes | $ | 10,071 | ||||||
The Company records a valuation allowance against deferred tax assets to the extent that it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Due to the substantial doubt related to the Company's ability to utilize its deferred tax assets, a valuation allowance for the full amount of the deferred tax assets has been established at December 31, 2025. During the year ended December 31, 2025, the valuation allowance increased by $6,591,212.
Under the FASB’s accounting guidance related to income tax positions, among other things, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, the guidance provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
A reconciliation of the beginning and ending amounts of unrecognized tax positions are as follows:
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Unrecognized tax benefits, beginning of the year | $ | 9,498,441 | $ | 6,432,143 | |||||||
Gross increase – current period tax positions | 5,033,976 | 3,073,575 | |||||||||
| Gross decrease – prior period tax positions | (397) | (7,277) | |||||||||
Unrecognized tax benefits, end of year | $ | 14,532,020 | $ | 9,498,441 | |||||||
If recognized, none of the unrecognized tax positions would impact the Company’s income tax benefit or effective tax rate as long as the Company’s net deferred tax assets remain subject to a full valuation allowance.
The Company had no accrual for interest or penalties on the Company’s Consolidated Balance Sheets at December 31, 2025 and 2024 and has not recognized interest and/or penalties in the Consolidated Statements of Operations for the years then endedFree Sentinel
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 10, 2026 | Showing above |
| 2024 | Mar 20, 2025 | |
| 2023 | Mar 22, 2024 | |
| 2022 | Mar 31, 2023 | |
| 2021 | Mar 28, 2022 | |
| 2020 | Mar 2, 2021 | |
| 2019 | Mar 23, 2020 | |
| 2018 | Mar 14, 2019 | |
| 2017 | Mar 19, 2018 | |
| 2016 | Mar 10, 2017 | |
| 2015 | Mar 21, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.