SkyAI, Inc. Income Taxes Disclosure

Note 14. Income Taxes 

 

The company has adopted Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” on a prospective basis for the year ended December 31, 2025.

 

A reconciliation of the Federal statutory rate of 21% for the year ended December 31, 2025 to the total effective rate applicable to income (loss) is as follows:

 Schedule of Reconciliation of Federal Statutory Rate to Total Effective Rate

		Year Ended December 31, 2025
		Amount				Percent
Income tax expense/(benefit) at federal statutory rate		$	(56,770,441	)			21.00	%
State and local income tax, net of federal benefit			-				0.00	%
Foreign tax effects
Cayman Islands			-				0.00	%
Foreign rate differential			33,010,332				-12.21	%
Others			1,177				0.00	%
Changes in tax laws or rates enacted			-				0.00	%
Effects of cross-border tax laws
U.S. impact of branch income			(33,011,509	)			12.21	%
Tax credits			-				0.00	%
Changes in valuation allowance			59,342,616				-21.95	%
Nontaxable or nondeductible items
US impact from sale of Hungary entity			(2,232,678	)			0.83	%
FMV adjustment for derivatives			(1,008,652	)			0.37	%
Others			669,154				-0.25	%
Income tax expense (benefit)		$	-				0.00	%

 

As previously disclosed for the year ended December 31, 2024, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory federal income tax rate as follows:

 

		Year Ended December 31, 2024
		Amount				Percent
Expected benefit at statutory federal tax rate		$	(1,097,306	)			21.00	%
Permanent differences - net			(633,540	)			12.12	%
State and local taxes, net of federal tax benefit			-				0.00	%
Other			-				0.00	%
Change in valuation allowance			1,730,846				-33.12	%
Income tax expense (benefit)		$	-				0.00	%

 

The components of the Company’s deferred tax assets (liabilities) are as follows –

 Schedule of Components of Deferred tax Assets

		Year Ended December 31, 2025				Year Ended December 31, 2024
Deferred tax assets (liabilities):
Fixed assets, net of impairments		$	-			$	136,529
Interest			35,178				35,178
Research and development expenses			-				446,811
Stock-based compensation			2,292,881				1,004,182
Charitable contributions			420				420
Net operating losses - federal			13,511,867				6,253,513
Net operating losses – state and local			528,982				543,264
Net operating losses - foreign			-				-
Research credit			28,985				28,985
Digital Assets – SOL basis differences			12,609,073				-
Digital Assets – inflationary rewards			(999,277	)			-
Capital loss carryover			2,232,678				-
Compensatory warrants			17,548,397				-
Others			87,963				-
Less valuation allowance			(47,877,147	)			(8,448,882	)
Net deferred tax assets (liabilities)		$	-			$	-

 

The authoritative guidance requires the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities. Deferred tax assets or liabilities at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered.

 

The guidance also requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s current and past performance, the market environment in which the company operates, length of carryback and carryforward periods and existing contracts that will result in future profits. After reviewing all the evidence, the company has recorded a full valuation allowance.

 

As of December 31, 2025, the Company had U.S. federal net operating loss carryforwards of approximately $64,342,000 of which $241,000, if not fully utilized, expires by 2038 and of which $64,101,000 do not expire. Also, the Company had U.S. federal capital loss carryforwards of approximately $10,632,000 all of which, if not fully utilized, expires by 2031. Utilization is dependent on generating sufficient taxable income prior to expiration of the tax loss carryforwards and capital loss carryforward is only utilizable against future capital gains. Utilization of the U.S. net operating losses may be subject to substantial limitations in the event of a change of ownership under the provisions of Section 382 of the Internal Revenue Code. The Company has not performed an analysis, but the potential impact of any limitation would not be material to the financial statements due to the fact that the respective deferred taxes assets are fully offset by a valuation allowance.

 

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company has concluded OBBBA will have an immaterial impact on its income tax provision.

 

As of December 31, 2025, the liability for uncertain tax positions is zero and the Company believes that no liability for unrecognized tax benefits is required in relation to the potential for additional assessments.

 

The geographical components of loss before income taxes consisted of the following for the years ended December 31:

 Schedule of Geographical Components of Loss Before Income Taxes

		Year Ended				Year Ended
		December 31,				December 31,
		2025				2024
United States operations		$	(113,137,182	)		$	(5,225,266	)
International operations			(157,198,254	)			-
Loss before taxes		$	(270,335,436	)		$	(5,225,266	)

 

For the years ended December 31, 2025 and December 31, 2024, cash paid for taxes, net of refunds, are as follows – 

 Schedule of Cash Paid for Taxes, Net of Refunds

		Year Ended				Year Ended
		December 31,				December 31,
		2025				2024
Federal		$	-			$	-
State			-				-
Foreign			-				-
Total tax payments		$	-			$	-

 

 

SHARPS TECHNOLOGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024