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.

NOTE 14: INCOME TAXES

Our income before provision for (benefit from) income taxes for the year ended December 31, 2025 and 2024 was as follows:

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A provision for (benefit from) income taxes of $(16,086), and $0 has been recognized for the years ended December 31, 2025 and 2024, respectively.

The components of the provision for income taxes for the years ended December 31, 2025 and 2024 consisted of the following:

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In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures by requiring more granular disaggregation in the effective tax rate (“ETR”) reconciliation and providing expanded information regarding income taxes paid, categorized by jurisdiction. The Company adopted the provisions of ASU 2023-09 on a prospective basis effective January 1, 2025.

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The company did not have any cash paid amount for income taxes, net of refunds for the year ended December 31, 2025.

A reconciliation of the federal statutory income tax rate to the effective income tax rate prepared under the disclosure requirements prior to the adoption of ASU 2023-09 is as follows for the year ended December 31:

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Deferred tax assets (liabilities) as of December 31, 2025 and 2024 consisted of the following:

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As of December 31, 2025, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $34,944,785. Of this amount, $962,509 will begin to expire in 2036, and the remaining $33,982,276 can be carried forward indefinitely. Under the Tax Cuts and Jobs Act of 2017, the utilization of federal NOLs arising in tax years beginning after December 31, 2017, is limited to 80% of the Company’s taxable income in the year of utilization. Additionally, as of December 31, 2025, the Company had state NOL carryforwards of approximately $15,780,473, which will begin to expire in 2044, and foreign NOL carryforwards of approximately $6,332,138. The foreign NOL carryforwards consist of $1,269,615 of business losses, which will begin to expire in 2027, and $5,062,523 of unabsorbed depreciation, which can be carried forward indefinitely.

Management regularly assesses the ability to realize deferred tax assets recorded based upon the weight of all available evidence, including such factors as recent earnings history and expected future taxable income on a jurisdiction-by-jurisdiction basis. In the event that the Company changes its determination as to the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. The Company’s management believes that, based on a number of factors, it is more likely than not, that all or some portion of the deferred tax assets will not be realized; and accordingly, for the year ended December 31, 2025, the Company has provided a valuation allowance for certain deferred tax assets that are expected to be unrealized against the Company’s U.S. net deferred tax assets. The net change in the valuation allowance for the years ended December 31, 2025 and 2024 was an increase of $2,955,488 and $3,680,546, respectively. The increase in the valuation allowance year-over-year was mainly driven by the increase in net operating losses in the United States and India and interest expense carryforward.

Pursuant to Sections 382 and 383 of the Internal Revenue Code, or IRC, annual use of the Company’s net operating losses and tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The amount of annual limitation is determined based on the value of the Company immediately prior to the ownership changes. The Company is in process of performing an assessment of whether a change in ownership has occurred or whether there have been multiple changes in ownership, within the meaning of Section 382. Due to the Company’s position of full valuation allowance of domestic net deferred tax assets, the Company does not believe this has any material impact on the Company’s income tax provision.

The Company had no unrecognized tax benefits for the years ended December 31, 2025 and 2024. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. No such interest and penalties were recognized during the years ended December 31, 2025 and 2024.

The Company expects to file income tax returns in the U.S. federal, various state jurisdictions, and India for 2025. The Company is not currently under examination by income tax authorities in federal, state, or India. All tax returns remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss or credits. India’s statute of limitations generally expires three years from the end of the relevant assessment year. Therefore, the assessment years 2022–23 through 2025–26 remain open to examination.

In recent years the United States has enacted new tax legislation (the American Rescue Act, CHIPS and Science Act, and the Inflation Reduction Act). On July 4, 2025, the 2025 Tax Act was enacted in the United States. This legislation includes multiple changes, such as restoration of immediate expensing of domestic research and development expenditures under §174, reduction of GILTI and FDII deductions under §250, increase of foreign tax credit limitation from 80% to 90%, reinstatement of 100% bonus depreciation for qualified property acquired after January 19, 2025, to name a few. Due to the Company’s net operating losses for both accounting and tax purposes, the new tax legislation does not have a material impact on the Company’s provision for income taxes.