Annual report [Section 13 and 15(d), not S-K Item 405]

INCOME TAXES

v3.26.1
INCOME TAXES
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 16 – INCOME TAXES

 

Deferred taxes are determined by applying the provisions of enacted tax laws and rates for the jurisdictions in which the Company operates to the estimated future tax effects of the differences between the tax basis of assets and liabilities and their reported amounts in the Company’s financial statements. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized.

 

Due to losses since inception through December 31, 2024, no income tax benefit or expense has been recognized as a full valuation allowance was established for any tax benefit that would have been recognized for the loss in the year ended December 31, 2024.

 

The provision for income taxes for the year ended December 31, 2025 consists of the following:

       
    2025  
Current        
Federal taxes   $ –  
State taxes     –  
Total current     –  
         
Deferred        
Federal tax benefit     (5,060,603 )
State tax benefit, net of federal benefit     (323,370 )
Total income tax benefit   $ (5,383,973 )

 

The income tax benefit for the year ended December 31, 2025 is a result of the Company receiving BTC of $28.0 million for the purchase of common stock and pre-funded warrants in the Private Placement from two investors. The Company’s basis in the BTC is carried over from the investors’ basis which resulted in the Company having a tax basis of $3,578,522. The Company recorded a deferred tax liability for the tax effect of the difference in the tax basis and the $28.0 million as a reduction to additional paid in capital. As a result, the Company released the same amount of its previously recorded valuation allowance on its deferred tax assets as a tax benefit.

 

The components of income tax expense (benefit) for the years ended December 31, 2025 and 2024 are as follows:

                       
    2025     %     2024     %  
Expected federal income tax benefit at statutory rate   $ (32,641,656 )     21.0     $ (9,557,165 )     21.0  
State income taxes, net of federal benefit     (1,618,882 )     1.0                  
                                 
Non-taxable or non-deductible items:                                
Stock compensation     105,000       (0.1 )     65,301       (0.1 )
(Gain) loss on warrants classified as liabilities     –               3,101,361       (6.8 )
Loss on extinguishment of Convertible Notes     –               345,998       (0.8 )
Interest expense on Convertible Notes     –               66,116       (0.1 )
Other     25,788       *       15,517       *  
                                 
Other reconciling items:                                
Tax rate change     (119,516 )     0.1       –          
Return to provision and true ups     –               345,266       (0.8 )
Write off of deferred tax asset for stock-based compensation     –               3,235,732       (7.1 )
Change in valuation allowance     28,865,293       (18.6 )     2,381,874       (5.2 )
Income tax benefit   $ (5,383,973 )     3.5     $ –       0.0  

 

* less than 0.1%

 

Due to the impact of the reverse stock split in June 2024 on the adjusted number of outstanding options and exercise prices, the Company concluded that it was a remote possibility that any options prior to this reverse split will be exercised and therefore wrote off the deferred tax asset and related valuation allowance for stock-based compensation related to these options.

 

The components of the Company’s deferred tax assets and liabilities at December 31, 2025 and December 31, 2024 are as follows:

           
   

December 31,

2025

    

December 31,

2024

  
Deferred tax assets                
Net operating losses   $ 25,562,308     $ 20,932,619  
Unrealized loss on digital assets     21,657,531       –  
Stock-based compensation     3,819,466       –  
Depreciation and amortization     776,599       1,562,438  
Research & development credit     1,099,535       1,099,535  
Lease liability     174,998       162,786  
Accrued expenses     47,898       94,561  
Capital loss carryover     187,549       178,442  
Vendor settlements and reserves     262,168       689,253  
Other     26,066       41,554  
Total     53,614,118       24,761,188  
Valuation allowance     (53,296,785 )     (24,431,492 )
Net deferred tax asset     317,333       329,696  
                 
Deferred tax liabilities                
Prepaid expenses     (145,763 )     (174,457 )
Right-of-use assets     (171,570 )     (155,239 )
Total net deferred taxes deferred tax liabilities   $ –     $ –  

 

Management currently believes that since the Company has a history of losses it is more likely than not that the deferred tax regarding the loss carry forwards and other temporary differences will not be realized in the foreseeable future. The utilization of the Company’s net operating losses and credit carryovers may be subject to limitation due to the “change in ownership provisions” under Section 382 of the Internal Revenue Code. The Company’s cumulative net operating loss carry forward of $120.7 million as of December 31, 2025, may be limited in future years depending on future taxable income in any given fiscal year. The net operating losses can be carried forward indefinitely.

 

The Company has recorded no liability for income taxes associated with unrecognized tax benefits at the date of adoption and has not recorded any liability associated with unrecognized tax benefits. Accordingly, the Company has not recorded any interest or penalty in regard to any unrecognized benefit.