NOTE 12. INCOME TAXES

OTHYS, Boat Center, and Azure, each limited liability companies since inception, were taxed as partnerships for U.S. federal and applicable state income tax purposes. Accordingly, taxable income or loss was passed through to the respective members, and no provision for income taxes was recorded at the entity level.

OTH incorporated on January 3, 2025 and is taxed as C corporation under the Code. AYG was incorporated in the State of Florida on August 8, 2025 and is taxed as C corporation under the Code. Income tax liability as of June 30, 2026 was $0.2 million. Income tax liability for December 31, 2025 was immaterial. OTH and AYG are subject to U.S. federal and state income tax in certain jurisdictions.

The Company is an Emerging Growth Company and has elected to use the extended transition period for complying with new or revised accounting standards. The Company adopted ASU 2023-09, effective January 1, 2026. The adoption did not have a material impact on the Company’s condensed consolidated financial statements for the interim period.

On July 4th, 2025, the President signed into law significant federal tax legislation, H.R.1 (the “Tax Reform Act of 2025”). The legislation includes numerous changes to U.S. corporate income tax law, including but not limited to: permanent 100% bonus depreciation for qualified property, immediate expensing of domestic research and experimental expenditures, modifications to the limitation on business interest expense, increased Section 179 expensing limits, changes to the international tax regime, and expanded limitations on the deductibility of executive compensation under IRC Section 162(m). Most provisions are effective for tax years beginning after December 31, 2024, with certain transition rules and exceptions. The Company does not expect the Tax Reform Act of 2025 to have a material impact on its effective tax rate for the fiscal year ended December 31, 2026.

The income tax provision for the six months ended June 30, 2026 and 2025 consisted of the following:

 SCHEDULE OF INCOME TAX PROVISION

The tax effect of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases that give rise to deferred tax assets and liabilities is as follows:

 SCHEDULE OF DEFERRED TAX ASSETS

The Company’s effective tax rates for the six months ended June 30, 2026 and 2025 were (33.5)% and 0.0% respectively, the effective tax rate for the six months ended June 30, 2026 and 2025 varied from the United States statutory rate primarily due to valuation allowance activity.

Net operating losses and tax credit carryforwards as of June 30, 2026 were as follows:

 SCHEDULE OF NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS

Pursuant to Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), annual use of the Company’s net operating losses (“NOLs”) and research and development (“R&D”) credit carryforwards may be limited in the event that a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not undergone an analysis to determine whether this limitation would apply to the utilization of the NOL carryforward. However, as the federal NOLs do not expire, the Company does not believe that any potential limitations to federal or state NOLs, or federal credit carryforwards, if applicable, would be material to the financial statements.

Uncertain Tax Positions

The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of June 30, 2026 and December 31, 2025, the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest and penalties related to potential underpaid income taxes for the six months ended June 30, 2026 and 2025.

As of June 30, 2026, there were no active taxing authority examinations in any of the Company’s major tax jurisdictions.

On July 4, 2025, President Trump signed into law the legislation commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The OBBBA includes various 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 OBBBA has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. While the OBBBA did not have a significant impact on the Company’s total tax provision as of December 2025, the Company is still evaluating the Company’s position on the elective provisions of the law and the potential impacts of those elections on the condensed consolidated financial statements.

For the six months ended June 30, 2026, there was no cash paid for federal or state taxes.