Nixxy, Inc. Income Taxes Disclosure

NOTE 13 - INCOME TAXES

 

The Company has, subject to limitation, approximately $68 million of net operating loss carryforwards (“NOL”) at December 31, 2025, of which approximately $7 million will expire at various dates through 2037 and approximately $61 million can be carried forward indefinitely. The Company has provided a 100% valuation allowance for the deferred tax benefits resulting from the net operating loss carryover due to the lack of earnings history. In addressing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. The valuation allowance increased by approximately $4 million and $6 million for the years ended December 31, 2025 and 2024, respectively. Significant components of deferred tax assets and liabilities are as follows (in thousands):

Schedule of deferred tax assets and liabilities
(in thousands)		2025				2024
Deferred tax assets (liabilities):
Net operating loss carryover		$	16,918			$	16,050
Fixed assets			3				(4	)
Intangibles amortization			1,971				1,616
Goodwill			2,003				–
Stock compensation			4,240				3,463
Capital losses			14				14
Accrued expenses			83				(4	)
R&D Sec 174 capitalization			–				181
Credit loss allowance			214				221
Contract liabilities			6				(19	)
Other			119				92
Total deferred tax assets, net			25,571				21,610
Less: valuation allowance			(25,571	)			(21,610	)
Net deferred tax assets		$	–			$	–

 

The above NOL carryforward may be subject to an annual limitation under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions if the Company experienced one or more ownership changes which would limit the amount of NOL carryforward that can be utilized to offset future taxable income. In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. The Company has not completed an IRC Section 382/383 analysis. If a change in ownership were to have occurred, NOL carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate.

 

The actual tax benefit differs from the expected tax benefit for the years ended December 31, 2025, and 2024 (computed by applying the U.S. Federal Corporate tax rate of 21% to income before taxes) are as follows:

Schedule of expected tax benefit
(in thousands)		2025								2024
U.S. Federal statutory income tax rate		$	(2,751	)			21.00	%		$	(4,745	)			21.00	%
State and local income tax, net of federal income tax
California			(6	)			0.05	%			(1,055	)			4.67	%
New York (including MTA and NYC)			(676	)			5.16	%			(160	)			0.71	%
All other states (combined)			5				(0.04	%)			(169	)			0.75	%
Effects of changes in tax laws or rates enacted in the			493				(3.76	%)			(173	)			0.76	%
Nontaxable or nondeductible items
Change in FV of contingent consideration			242				(1.85	%)			–				–	%
Other			1				–	%			(3	)			0.01	%
Other adjustments
State NOL true-ups			593				(4.52	%)			323				(1.43	%)
Goodwill and Intangible true-ups			(2,468	)			18.84	%			–				–	%
CognoGroup spin-off			605				(4.62	%)			–				–	%
Other			1				(0.01	%)			–				–	%
Change in valuation allowance			3,961				(30.24	%)			5,982				(26.47	%)
Effective income tax rate		$	–				–	%		$	–				–	%

 

The Company’s tax returns for the previous four years remain open for audit by the respective tax jurisdictions.