SkyAI, Inc. Revenue Disclosure

Revenue

 

Medical Device Packaging Products

 

The Company generates revenue from the sale of single use medical device packaging products, primarily syringe or as packaging components for a customer’s product. Revenue is recorded, net of sales tax, if applicable. The Company considers revenue to be earned when all the following criteria are met: the Company has a contract with a customer that creates enforceable rights and obligations, promised products are identified, the transaction price is determinable and the Company has transferred control of the promised items to the customer. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in the contract. The transaction price for the contract is measured as the amount of consideration the Company expects to receive in exchange for the goods expected to be transferred. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as control of the distinct good or service is transferred. The Company’s products typically have one performance obligation, which is the sale of a single product. Transfer of control for the Company’s products is generally at shipment or delivery, depending on contractual terms, but occurs when title and risk of loss transfers to the customer. As such, the Company’s performance obligation related to product sales is satisfied at a point in time. The Company recognizes a receivable when it has an unconditional right to payment, which represents the amount the Company expects to collect in a transaction and is most often equal to the transaction price in the contract. Payment terms for shipments to end-user and distributor customers may range from 30 to 90 days. Amounts billed to customers for shipping and handling are included in revenue, while the related shipping and handling costs are reflected in cost of goods sold.

 

Digital Assets Revenue, Realized and Unrealized Gains and Losses

 

Acquisition of Digital Assets

 

We acquire liquid SOL tokens through purchases and delegated staking. In the case of liquid bulk purchases, we recognize for cost basis the actual price paid. In the case of liquid TWAP (time-weighted average price) over multiple hour or days, we recognize for cost basis the average price paid for all tokens purchases.

 

The Company is able to acquire additional locked SOL through direct negotiations with the owner or third-party custodians at a discounted price from the SOL market value price. With the purchase of locked SOL, we recognize the cost basis as the actual price paid after the discount applied from the SOL price. The unlocking of newly purchased locked SOL occurs over a series of dates as prescribed by the purchase agreement.

 

We acquire other digital assets through purchases and record the average price paid as the cost basis.

 

Per ASC 350-60-45-2, gains and losses from the remeasurement of digital assets shall be included in net income and presented separately from changes in the carrying value of other intangible assets. Pursuant to this guidance, changes in fair value are reflected on the income statement in the line item “Realized and unrealized (gain) loss on digital assets” in the operations section of the consolidated statements of operations. We measure changes in fair value as the difference between the cost basis and the prevailing market price of the digital asset at the date of measurement, multiplied by the quantity held of the digital asset.

 

These prices are independently analyzed, including comparisons to other exchanges and potential cut-off times.

 

For the derivative positions, the Custodians provide a period-end spot price for the open positions based on valuation models applied based on various inputs.

 

Remeasurement on a recurring basis

 

Subsequent to the acquisitions of SOL, remeasurement of change in fair value is done by taking the spot price as defined above on the last day of the period. Tokens are bifurcated between liquid and locked tokens. In the case of liquid tokens, the aggregate fair value is computed by taking the number of liquid and locked tokens and multiplying by the period-end spot price. As locked tokens become unlocked over time, they will be added to the count of liquid tokens and accordingly, make up less of that discount percentage over time when computing aggregate fair value on locked tokens. In the case of locked tokens, the aggregate fair value is computed by taking the number of locked tokens, discounted by 10%.

 

 

SHARPS TECHNOLOGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024

 

 

Note 2. Summary of Significant Accounting Policies (continued)

 

The 10% discount for December 31, 2025 used by management is based on the initial investor discount in the August 2025 Offering and other quoted data, as well as historical purchases of locked SOL that management has made on behalf of the Company. Management monitors this discount percentage and adjusts when appropriate. We performed a sensitivity analysis assuming a hypothetical 10% change in the discount to fair value of these digital assets to demonstrate the potential impact on our financial results. A hypothetical 10% increase or decrease in the discount would have positively or negatively impacted our Income (loss) before income taxes by approximately $8M     for the year ended December 31, 2025.

 

Staking revenue   

 

We earn staking rewards by delegating our digital assets to third-party validators on proof-of-stake blockchain networks. These tokens remain under the Company’s control and are not derecognized, as the delegation does not constitute a transfer of control under ASC 610-20 or ASC 350-60.

 

While there is no explicit guidance under U.S. GAAP for staking activities, the Company applies the principles of ASC 606, Revenue from Contracts with Customers, by analogy. Management evaluates whether a contract exists, identifies the performance obligations, and determines whether the Company acts as a principal or agent in the transaction. The transaction price is measured at the fair value of the digital assets received at the time control is obtained. Due to the evolving nature of blockchain protocols and limited regulatory guidance, management exercises significant judgment in evaluating validator reliability and the risk of slashing or forfeiture. Changes in protocol rules or accounting interpretations may materially impact how staking revenue is recognized and measured. SOL tokens held by the Company, whether liquid or locked, are eligible for staking. The Company evaluation has determined that it is the delegator and the Custodians, via agreements with validators, are the validators. Therefore, the Company recognizes the staking rewards on a net basis unless it is the validator. The Company believes that the Staking rewards variable revenue should be recognized when the staking rewards are received from the validator in the Company’s staking account.  

 

Rewards are recognized as revenue as is earned at the end of each epoch (just under two day periods for SOL). The FMV of the revenue is calculated using the spot price of SOL at the end of the epoch. For locked SOL where the staking rewards inherit the maturity of their underlying token, the 10% discount is applied. This revenue is reported on the Statements of consolidated statement of operations under the line item “Staking Revenue.” Changes in fair market value of the staking revenue after the initial staking revenue is recognized are reflected on the consolidated statement of operations as “realized and unrealized (gain) loss on digital assets”.

 

Realized disposition of the digital assets

 

To the extent such digital assets may be disposed, unrealized gain or (losses) shall be reversed and realized gains or (losses) shall be recorded for the difference between FMV price at disposition and its cost. For sales of digital assets, this would be the net transaction price. In the case of transfers of custody to third parties this is the spot price of the asset on the day of the transfer.

 

Product Warranties

 

The Company provides product warranties that: i) the products meet the terms of the customer order, ii) the products are not defective and iii) the products will conform to the descriptions set forth in their respective labeling, provided that they are used in accordance with such labeling and the Company’s written directions for use. The Company has not incurred warranty claims.

 

The Company’s return policy provides that a customer may return incorrect shipments or defective products within specified days following arrival at the customer’s facility. In all such cases, the customer must obtain an prior authorization from the Company. The Company has not incurred returns.

 

 

SHARPS TECHNOLOGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024

 

 

Note 2. Summary of Significant Accounting Policies (continued)