NETWORK-1 TECHNOLOGIES, INC. Income Taxes Disclosure

Note E – Income Taxes

Significant components of the income taxes were as follows for the years ended December 31, 2025 and 2024.

Schedule of components of the income taxes
		2025				2024
Current
State and local		$	—			$	—
Federal			(31,000	)			—
Total Current Tax Expense			(31,000	)			—
Deferred
State and local			(33,000	)			(42,000	)
Federal			(304,000	)			(383,000	)
Total Deferred Tax Expense			(337,000	)			(425,000	)
Total Income Taxes		$	(368,000	)		$	(425,000	)

 

Significant components of deferred tax assets (liability) as of December 31, 2025 and 2024 consisted of the following:

Schedule of components of deferred tax assets and liability
		2025				2024
Deferred tax assets (liability):
Net operating loss carryforward		$	1,513,000			$	1,215,000
Stock options and RSUs			62,000				26,000
Tax credit carryforward			148,000				148,000
Other			161,000				197,000
Total deferred tax assets			1,896,000				1,586,000
Valuation allowance			(1,896,000				(1,586,000	)
Deferred tax assets, net of valuation allowance		$	—			$	—

 

		2025				2024
Deferred Tax Liability(1)		$	—			$	(337,000	)
Total deferred tax liability		$	—			$	(337,000	)

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(1)	Deferred tax liability primarily as a result of a temporary difference related to the Company’s equity method investment.

 

As of December 31, 2025 and 2024, the Company’s estimated aggregate total net operating loss carryforwards (NOLs) were $6,439,000 and $5,158,000, respectively, for U.S. federal tax purposes with an indefinite life. At December 31, 2025 and 2024, the Company had deferred tax assets of $1,896,000 and $1,586,000, respectively, which were offset by valuation allowances of $1,896,000 and $1,586,000, respectively, as it was determined that it is more likely than not that the deferred tax assets would not be realized. At December 31, 2025 and 2024, the Company had a deferred tax liability position of $0 and $337,000, respectively.

The reconciliation between the taxes as shown and the amount that would be computed by applying the statutory federal income tax rate to the net income before income taxes is as follows:

Schedule of reconciliation of income tax
		Years Ended
		December 31,
		2025								2024
U.S. federal statutory rate		$	(585,000	)			21.00	%		$	(727,000	)			21.00	%
Permanent differences			—				—				—				—
Change in valuation allowance			311,000				(11.16	)%			381,000				(10.99	)%
Penalty abatement			(31,000	)			1.14	%			—				—
State(1)			(63,000	)			2.27	%			(79,000	)			2.27	%
Total		$	(368,000	)			13.25	%		$	(425,000	)			12.28	%

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(1) State taxes in Connecticut made up the majority (greater than 50 percent) of the tax effect of this category.

 

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of Treasury has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax. The excise tax applies in cases where the total value of the stock repurchased during the taxable year exceeds $1,000,000. The Company did not meet this threshold in 2025 (see Note M hereof).

The personal holding company (“PHC”) rules under the Internal Revenue Code impose a 20% tax on a PHC’s undistributed personal holding company income (“UPHCI”), which means, in general, taxable income subject to certain adjustments. For a corporation to be classified as a PHC, it must satisfy two tests: (i) that more than 50% in value of its outstanding shares must be owned directly or indirectly by five or fewer individuals at any time during the second half of the year (after applying constructive ownership rules to attribute stock owned by entities to their beneficial owners and among certain family members and other related parties) (the “Ownership Test”) and (ii) at least 60% of its adjusted ordinary gross income for a taxable year consists of dividends, interest, royalties, annuities and rents (the “Income Test”). During the second half of 2025, based on available information concerning the Company’s shareholder ownership, the Company did not satisfy the Ownership Test. In addition, the Company did not satisfy the Income Test in 2025. Thus, the Company was not a PHC for 2025. However, the Company may subsequently be determined to be a PHC in 2026 or in future years if it satisfies both the Ownership Test and the Income Test. If the Company were to become a PHC in 2026 or any future year, it would be subject to an additional 20% tax on its UPHCI. In such an event, the Company may issue a special cash dividend to its shareholders in an amount equal to the UPHCI rather than incur the additional 20% tax.