Note 17 – Income Taxes

For the period from June 7, 2025 to January 31, 2026 (Successor), the period from May 1, 2025 to June 6, 2025 (Predecessor) and the nine months ended January 31, 2025 (Predecessor), the Company’s earnings before income taxes, income tax expense and effective income tax rate were as follows:

 Schedule of Earnings Before Income Taxes, Income Tax Expense and Effective Income Tax Rate

The change in the effective tax rate for the period June 7, 2025 to January, 31, 2026 (Successor), compared to the predecessor period for May 1, 2025 to June 6, 2025 (Predecessor), and the three months ended January 31, 2026 (Successor) compared to January 31, 2025 (Predecessor), was primarily due to the impact of foreign statutory rates that are lower than the U.S. statutory tax rate, non-deductible transaction costs, U.S. inclusions on foreign income, and changes to valuation allowances on the legacy business of CEA Industries Inc.’s United States operations.

During the first quarter, the Company completed the acquisition of Fat Panda, which is taxed as a Canadian corporation. For Canadian federal income tax purposes, the transaction was treated as a stock acquisition with no step-up basis in tax. As a result, the goodwill and intangible assets recorded for financial reporting purposes are not deductible for tax purposes, giving rise to $1.2 million deferred tax liability, which is included in the Company’s net deferred tax liability.

As of January 31, 2026, the Company had $41.3 million of U.S. federal and state net operating loss (“NOL”) carry forwards related to its legacy U.S. operations. Approximately $11.2 million will expire, if not utilized, in calendar years 2034 through 2037. NOLs generated subsequent to December 31, 2017 do not expire but may be used to offset no more than 80% of taxable income in any given year.

Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, and applicable state law, the Company’s ability to utilize its NOL carry forwards may be limited if the Company experiences an “ownership change”, generally defined as a greater than 50% cumulative change in equity ownership by value over a three-year period. The securities offerings completed in September 2021 and February 2022, and the August 2025 private placement must be evaluated to determine whether an ownership change has occurred. If an ownership change is determined to have occurred, the Company’s ability to utilize its NOL carry forwards may be materially limited, which could adversely affect future tax obligations.

The Company must assess the likelihood that its net deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not likely, the Company establishes a valuation allowance. Management’s judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against the net deferred tax assets.

As of January 31, 2026, the Company recorded a full valuation allowance against the deferred tax assets related to its U.S operations. Based on the available evidence, the Company believes it is more likely than not that these deferred tax assets will be realized in the foreseeable future. The Company intends to maintain valuation allowances until sufficient evidence exists to support the reversal. Estimates of future taxable income are based on assumptions consistent with the Company’s operating plans. However, if actual results differ from these estimates, the carrying value of deferred tax assets could be materially impacted.

The Company also regularly evaluates the adequacy of its provisions for income tax contingencies in accordance with the applicable authoritative guidance. Uncertain tax positions are recorded using a two-step process; (i) the determining whether a tax position is more likely than not to be sustained on the basis of the technical merits, and (ii) measuring the amount of benefit to recognize as the largest amount that is more likely than not to be realized upon ultimate settlement. The Company currently has recorded a $0.2 million reserves for uncertain tax positions in Canada.

On July 4, 2025, the President signed H.R. 1, the One Big Beautiful Bill Act (the “Act”) into law. The Act includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expense of domestic R&D expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense.

The Act also includes certain changes to the US taxation of foreign activity, including changes to foreign tax credits, GILTI, FDII, and BEAT, amongst other changes. These changes are generally effective for tax years beginning after Dec. 31, 2025.

The Company is currently assessing the impact of the Act but does not expect have a material impact on the tax provision.