DESTINATION XL GROUP, INC. Income Taxes Disclosure

F. INCOME TAXES

The Company accounts for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires recognition of deferred tax assets and liabilities for temporary differences using enacted tax rates expected to apply when those differences reverse. Deferred tax assets are recognized only to the extent that their realization is considered more‑likely‑than‑not. If it is more‑likely‑than‑not that some portion or all of the deferred tax assets will not be realized, a valuation allowance must be established.

The Company’s deferred tax assets primarily relate to federal and state net operating loss carryforwards. Realization of these assets depends on the generation of future taxable income. Over the past two years, the big + tall sector has been adversely affected by general economic weakness, including inflation and rising costs, which has reduced discretionary consumer spending. Consistent with these trends, the Company has experienced declining revenue over the past two fiscal years and generated a net operating loss in fiscal 2025.

In addition, deteriorating macroeconomic factors have contributed to a decline in the Company’s market capitalization. While the Company believes that profitability will return over the long term, the Company is forecasting operating losses in the near term. Management concluded that this negative evidence outweighs available positive evidence regarding realizability of its deferred tax assets. Accordingly, in the fourth quarter of fiscal 2025, the Company recorded a non-cash charge of $20.4 million to establish a full valuation allowance against its net deferred tax assets. At January 31, 2026 and February 1, 2025, the valuation allowance was $21.8 million and $1.5 million, respectively.

As of January 31, 2026, for federal income tax purposes, the Company had net operating loss carryforwards of $4.4 million, which will expire by fiscal 2037, and net operating loss carryforwards of $59.7 million that are not subject to expiration. For state income tax purposes, the Company had $46.1 million of net operating loss carryforwards that are available to offset future taxable income, some of which will expire from fiscal 2026 through fiscal 2046. Additionally, the Company has $5.0 million of net operating loss carryforwards related to the Company’s operations in Canada, which will expire from fiscal 2026 through fiscal 2041.

The utilization of net operating loss carryforwards and the realization of tax benefits in future years depends predominantly upon having taxable income. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss carryforwards and tax credit carryforwards, which may be used in future years. As of January 31, 2026, there has been no such ownership change. See Note M, Agreement and Plan of Merger.

For fiscal 2025, the Company had total deferred tax assets of $74.8 million, total deferred tax liabilities of $53.0 million and a valuation allowance of $21.8 million.

As discussed in Note A, the Company’s financial statements reflect the expected future tax consequences of uncertain tax positions that the Company has taken or expects to take on a tax return, based solely on the technical merits of the tax position.

The Company made tax payments of $1.1 million and $1.6 million for fiscal 2024 and fiscal 2023, respectively.