NOTE 13: INCOME TAXES

We determine the interim tax benefit (provision) by applying an estimate of the annual effective tax rate to the year-to-date pretax book income (loss) and adjusting for discrete items during the reporting period, if any. Tax jurisdictions with losses for which tax benefits cannot be realized, as well as significant unusual or infrequently occurring items that are separately reported, are excluded from the annual effective tax rate.

GIX / Blue Cloud Share Swap: Income Tax Matters

During the three months ended June 30, 2026, the Company completed a share-swap transaction in which its 94.1% equity interest in Global Impx Inc. (“GIX”), Delaware, was exchanged with Blue Cloud Softech Solutions Limited (“Blue Cloud”), a BSE-listed Indian company. The Company transferred 200,000,000 GIX shares and received 160,000,000 Blue Cloud shares by way of preferential allotment. The transaction was effected entirely in shares; no cash was paid or received by either party. The transaction closed on June 17, 2026 and has been evaluated as a discrete item for interim income-tax provision purposes under both U.S. and Indian tax laws.

U.S. federal income tax. The Company’s technical position is that the transaction qualifies for nonrecognition treatment under Treasury Regulation §1.367(a)-3(c)(1). If treated as taxable, the Company estimates a preliminary U.S. tax gain of approximately $18,800,000 before net operating loss (“NOL”) utilization, based on a Blue Cloud share value of INR 18.63, an exchange rate of INR 94.8889 to $1.00, and an estimated adjusted tax basis of approximately $12,600,000. After modeled utilization of approximately $15,200,000 of federal NOL carryforwards, residual taxable gain of approximately $3,600,000 would result in estimated U.S. tax expense of approximately $890,000 at a blended federal and state rate of 25%.

Indian income tax. The Company’s technical position is that the transaction is not within the indirect-transfer regime of Section 9(1)(i) Explanation 5 of the Indian Income-tax Act, on the basis that Indian assets constitute less than 50% of GIX’s fair market value on the specified date, in which case no Indian tax would arise. If the regime were to apply, the Company’s preliminary estimate of Indian capital-gains exposure attributable to its $31,400,000 share of consideration falls in a central band of approximately $120,000 to $1,750,000 (long-term capital-gains treatment at approximately 13.65%), with an adverse-scenario ceiling of up to approximately $4,010,000 under an application of India’s General Anti-Avoidance Rule (short-term treatment at approximately 32.76%).

Reserve recognized. The Company has recorded an aggregate discrete tax reserve of approximately $4,900,000 comprising a major portion of the Indian adverse-scenario ceiling and the U.S. tax expense after modeled NOL utilization. The reserve assumes the adverse outcome in each jurisdiction concurrently and independently and does not reflect any offset for U.S. foreign tax credits or relief available under the India-United States tax treaty. Such relief would generally be available in the event both jurisdictions asserted taxing rights on the same gain, and no such offset has been reflected in the amount recorded.

The reserve is a non-cash charge recorded within income tax expense for the quarter. The charge is excluded from Adjusted EBITDA as a discrete tax item.

Basis for re-measurement. The reserve is expected to be re-measured in a subsequent period as the following are completed: an independent Rule 11UB fair-market-value certificate and intellectual-property valuations by a SEBI-registered Category I Merchant Banker; a consolidated Ind AS balance sheet of GIX; a formal opinion from the Company’s Indian tax advisor; contemporaneous commercial-substance documentation; and a Section 382 ownership-change study. The Company is actively pursuing each of these items and currently expects the substantive workstreams to be completed during the third quarter of 2026. The final combined U.S. and Indian tax impact could differ materially from the preliminary estimates, and may be materially lower than the amount currently recorded.