Foxx Development Holdings Inc

Lease Commitment

Reference to note 16 for detailed disclosure of entered lease agreements.

Note 18 — Income taxes

The Company’s effective tax rate was (1.0) % and 8.6%, respectively, for the nine months ended March 31, 2024 and 2023. The effective tax rate was lower than the U.S federal statutory rate of 21% due to the Company’s full valuation allowance recorded against its deferred tax assets.

The Company had a cumulative net operating loss carryforward (“NOL”) for federal and state income tax purpose of approximately $7.1 million and $2.5 million, respectively, as of March 31, 2024. The Company elected 100% allowance on deferred tax asset, for the nine months ended March 31, 2024, and the company incurred approximately $1.7 million allowance on deferred tax asset; approximately $1.2 million of valuation allowance for the year ended June 30, 2023. The Company’s NOL was limited to 80% of the excess of taxable income on federal level, same apply to state tax. Both Company’s federal and state NOLs will last indefinitely.

Note 18 — Income taxes (cont.)

The Company’s ability to use its federal net operating carryforwards may be limited if the Company experiences an “ownership change” as defined in Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended. However, since no ownership changes have occurred within the Company, it allows the Company to utilize its NOLs without limitation for the future years.