Nixxy, Inc.: Form 10-Q for the period ended Jun 30, 2026

The following discussion and analysis should be read in conjunction with the Company's unaudited interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”). In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on April 15, 2026.

For purposes of this Quarterly Report, “Nixxy,” “we,” “our,” “us,” or similar references refers to Nixxy, Inc. and its consolidated subsidiaries, unless the context requires otherwise.

Overview

During the six months ended June 30, 2026, the Company continued to execute its strategic transformation into a communications and data infrastructure platform. The Company’s operating focus is centered on scaling its telecommunications revenue base, improving operating efficiency through automation and AI-enabled routing, and expanding into higher-value infrastructure and software-driven applications.

The Company’s telecommunications platform has experienced significant growth in traffic volumes and revenue run-rate, supported by expanded carrier relationships, improved routing performance, and increased operational scale. Based on internal management estimates and prior disclosures, the Company’s telecommunications business has reached an annualized revenue run-rate of approximately $150 million to $180 million as of late 2025, although such run-rate may not be indicative of future results.

Revenue Growth and Communications Platform Scaling

The Company’s revenue growth has been primarily driven by:

• Expansion of wholesale voice and messaging traffic volumes
• Increased number of carrier interconnect relationships
• Improved routing performance and delivery consistency
• Repeatable, transaction-based revenue streams tied to communications traffic

Management believes that the Company’s communications platform represents a scalable and repeatable revenue engine, where incremental traffic can be added with limited proportional increases in operating overhead. Revenue is largely usage-based and may fluctuate based on traffic volumes, routing decisions, customer demand, and market pricing conditions.

Margin Expansion and Traffic Mix Optimization

A core component of the Company’s strategy is the improvement of unit economics through a combination of traffic mix optimization and operational automation.

Key drivers of margin expansion include:

• Traffic mix shift: Increasing the proportion of higher-margin messaging (SMS) traffic relative to lower-margin voice traffic over time
• Optimized logic routing: Utilizing automation and data analytics to optimize route selection, improve quality of service, and enhance cost efficiency
• Operational automation: Reducing manual intervention in routing, billing, and settlement workflows

Management believes that these initiatives support a disciplined margin expansion framework, although realized margins may vary depending on market conditions, pricing dynamics, and traffic composition.

Operating Efficiency and Automation

The Company has invested in AI-enabled systems designed to:

• Monitor network performance and traffic flows
• Detect anomalies and mitigate fraud risks
• Automate routing and quality-of-service governance
• Improve billing accuracy and settlement processes

These capabilities are intended to improve operating efficiency, reduce manual overhead, and enhance consistency across the Company’s telecommunications operations. As the platform scales, management expects automation to play an increasing role in supporting operational leverage; however, the timing and extent of such benefits remain dependent on execution and market conditions.

Expansion into Infrastructure and Software

In addition to its core telecommunications operations, the Company has made investments in infrastructure and software assets intended to support higher-value applications, including:

• Edge data infrastructure associated with Everythink Innovations Limited
• AI-enabled software platforms, including AQUA and Leadnova.ai
• Platform components designed to support workflow automation and data processing

These initiatives are intended to enable the Company to process communications and related data within controlled infrastructure environments and to support the development of software-based offerings over time.

Leadnova.ai is currently in user acceptance testing, with a targeted commercial beta planned for 2026, subject to execution.

Telco + Fintech Convergence Initiatives

The Company is pursuing opportunities at the intersection of telecommunications and financial technology, leveraging its communications infrastructure to support transaction-enabled workflows.

These initiatives include:

• Messaging-based payment enablement (e.g., text-to-pay functionality)
• Transaction notifications and confirmations
• Identity verification and authentication workflows
• Cross-border communications supporting financial interactions

The Company is developing these capabilities in part through strategic partnerships, including collaboration with PayToMe, which provides development resources and fintech platform capabilities.

PayToMe.co is a Silicon Valley–based AI-native financial technology platform enabling embedded payments and cross-border transaction workflows across global markets.

Management believes that integrating communications and transaction workflows may represent a significant long-term opportunity; however, these initiatives are in development, and their timing, adoption, and financial impact remain uncertain and subject to execution and regulatory considerations.

Liquidity and Capital Strategy

The Company continues to evaluate capital allocation strategies to support:

• Growth in telecommunications traffic volumes
• Investment in infrastructure and platform development
• Strategic partnerships and potential acquisitions

Management expects that continued revenue growth and operational improvements may support progress toward improved cash flow performance; however, the Company may require additional capital to execute its growth strategy.

Key Business Drivers and Outlook

Management believes that the Company’s future performance will be influenced by:

• Growth in global communications traffic volumes
• Ability to maintain and expand carrier relationships
• Execution of traffic mix optimization and margin expansion strategies
• Progress in infrastructure and software commercialization
• Development of communications-enabled fintech capabilities

While management believes the Company is positioned to benefit from these trends, actual results may differ materially due to market conditions, competition, regulatory factors, and execution risks.

Results of Operations

Three Months Ended June 30, 2026, Compared to Three Months Ended June 30, 2025:

Revenue

Revenue was approximately $16.1 million for the three-month period ended June 30, 2026, as compared to $13.4 million for the three-month period ended June 30, 2025, representing an increase of $2.7 million or 20%. The increase resulted primarily due to the expansion of the Company's telecommunication services business.

Cost of Revenue

Cost of revenue was $16.1 million for the three-month period ended June 30, 2026, compared to $13.4 million for the corresponding three-month period ended June 30, 2025, representing an increase of $2.7 million or 20%. This increase resulted primarily from the increase in revenue generating operations from the expansion to the telecommunication services business.

Operating Expenses

Operating expenses, excluding cost of revenue described above, were approximately $1.7 million for the three-month period ended June 30, 2026, compared to $2.2 million for the corresponding three-month period ended June 30, 2025, a decrease of $584 thousand or 26%. This decrease was due to a decrease in general and administrative expenses of $958 thousand, largely due to a decrease of $600 thousand in stock compensation expense. The general and administrative decrease was partially offset by an increase of $274 thousand to amortization of intangibles related to purchases made after Q2 2025.

Sales and Marketing

Sales and marketing expense was approximately $127 thousand for the three-month period ended June 30, 2026, compared to $9 thousand for the corresponding three-month period in 2025, an increase of $118 thousand. The increase was primarily attributable to new marketing expenditures as part of the Company’s growth initiatives focused on improving revenue.

Product Development

Product development expense for the three-months ended June 30, 2026, decreased to $2 thousand from $19 thousand for the corresponding period ended June 30, 2025.

Amortization of Intangibles

For the three-month period ended June 30, 2026, the Company incurred a non-cash amortization charge of $713 thousand as compared to $439 thousand for the corresponding period ended June 30, 2025. The increase in amortization expense was primarily attributable to intangible assets acquired in connection with the Company’s 2025 telecommunications-related acquisitions.

General and Administrative

General and administrative expenses consist primarily of compensation-related costs for personnel performing corporate, finance, and administrative functions, as well as legal, audit, tax, consulting, and other professional fees and general corporate expenses.

For the three-month period ended June 30, 2026, general and administrative expenses were $818 thousand, including $162 thousand of non-cash stock-based compensation. For the three-month period ended June 30, 2025, for the corresponding period, general and administrative expenses were $1.8 million, including $800 thousand of non-cash stock-based compensation. Non-cash stock-based compensation increases GAAP general and administrative expenses and, consequently, operating loss, but it does not reduce cash flows. As a result, while operating loss may appear higher, actual cash outflows for general and administrative activities are lower than the GAAP expense.

Other Income (Expense)

Other income (expense) for the three-month period ended June 30, 2026, was an expense of $680 thousand compared to expense of $1.4 million in the corresponding period ended June 30, 2025. This decrease is attributable to the decrease in loss change in fair value of contingent consideration of $1.3 million, partially offset by the increase in loss on change on fair value of marketable securities of $627 thousand.

Net Income (Loss)

For the three-months ended June 30, 2026, the Company had a net loss from continuing operations of $(2.3) million compared to a net loss from continuing operations of $(3.6) million during the corresponding three-month period in 2025.

Six Months Ended June 30, 2026, Compared to Six Months Ended June 30, 2025:

Revenue

Revenue was approximately $45.2 million for the six month period ended June 30, 2026, as compared to $14.6 million for the six month period ended June 30, 2025, representing an increase of $30.6 million or 209%. The increase resulted primarily due to the expansion of the Company's telecommunication services business.

Cost of Revenue

Cost of revenue was $45.1 million for the six month period ended June 30, 2026, compared to $14.6 million for the corresponding six month period in 2025, representing an increase of $30.5 million or 209%. This increase resulted primarily from the increase in revenue generating operations from the expansion to the telecommunication services business.

Operating Expenses

Operating expenses, excluding cost of revenue described above, were approximately $2.9 million for the six month period ended June 30, 2026, compared to $6.1 million for the corresponding six month period in 2025, a decrease of $3.1 million or 52%. This decrease was due to a decrease in general and administrative expenses of $3.5 million, largely related to a decrease in stock compensation expense.

Sales and Marketing

Sales and marketing expense was approximately $127 thousand for the six month period ended June 30, 2026, compared to $558 thousand for the corresponding six month period in 2025, a decrease of $431 thousand. The decrease was primarily attributable to reducing marketing expenditures as part of the Company’s cost management initiatives in the prior quarter.

Product Development

Product development expense for the six months ended June 30, 2026, decreased to $4 thousand from $34 thousand for the corresponding period in 2025 due to a large focus on product development in the prior period.

Amortization of Intangibles

For the six month period ended June 30, 2026, the Company incurred a non-cash amortization charge of $1.4 million as compared to $601 thousand for the corresponding period in 2025. The increase in amortization expense was primarily attributable to intangible assets acquired in connection with the Company’s 2025 telecommunications-related acquisitions.

General and Administrative

General and administrative expenses consist primarily of compensation-related costs for personnel performing corporate, finance, and administrative functions, as well as legal, audit, tax, consulting, and other professional fees and general corporate expenses.

For the six month period ended June 30, 2026, general and administrative expenses were $1.4 million, including $245 thousand of non-cash stock-based compensation. In 2025, for the corresponding period, general and administrative expenses were $4.9 million, including $2.6 million of non-cash stock-based compensation. Non-cash stock-based compensation increases GAAP general and administrative expenses and, consequently, operating loss, but it does not reduce cash flows. As a result, while operating loss may appear higher, actual cash outflows for general and administrative activities are lower than the GAAP expense.

Other Income (Expense)

Other income (expense) for the six month period ended June 30, 2026, was income of $1.1 million compared to expense of $1.3 million in the corresponding 2025 period. This increase is attributable to the decrease in loss change in fair value of contingent consideration of $1.3 million, partially offset by the increase in Gain on change on fair value of marketable securities of $1.1 million.

Net Income (Loss)

For the six months ended June 30, 2026, the Company had a net loss from continuing operations of $1.8 million compared to a net loss from continuing operations of $7.3 million during the corresponding six month period in 2025.

Liquidity and Capital Resources

Operating Activities

Net cash used in operating activities was approximately $1.4 million for the six months ended June 30, 2026, compared to $3.0 million for the six months ended June 30, 2025.

For the six months ended June 30, 2026, the Company reported a net loss from continuing operations and discontinued operations of $1.8 million. The net loss includes non-cash expenses, including:

• Depreciation and amortization of $1.4 million
• Stock-based compensation of $245 thousand
• Change in fair value of marketable securities of $1.1 million

For the six months ended June 30, 2025, net loss from continuing operating operations was $7.3 million and net loss from discontinued operations was $1.5 million. The 2025 net loss included significant non-cash charges, including:

• Depreciation and amortization of $607 thousand (continuing) and $232 thousand (discontinued)
• Stock-based compensation of $2.6 million (continuing) and $691 thousand (discontinued)
• Change in fair value of contingent consideration of $$1.3 million

The decrease in cash used in operating activities during 2026 was primarily attributable to lower expenses.

Investing Activities

Net cash used in investing activities was approximately $0 for the six months ended June 30, 2026, compared to $400 thousand for the six months ended June 30, 2025.

The 2025 cash outflow related to purchases of intangible assets associated with the Company’s telecommunications expansion.

Financing Activities

Net cash provided by financing activities was approximately $1.5 million for the six months ended June 30, 2026. The primary sources of financing were:

• $1.3 million from common stock offerings
• $225 thousand from proceeds under a line of credit

Net cash provided by financing activities was approximately $1.8 million for the six months ended June 30, 2025. The primary sources of financing were:

• $1.8 million proceeds from issuance of common stock

Liquidity and Going Concern

As of June 30, 2026, the Company had cash on hand of approximately $330 thousand.

Based on current operating levels and cash on hand, the Company does not have sufficient capital to meet its working capital needs for the next twelve months. The Company has incurred recurring losses and negative operating cash flows since inception.

For the six months ended June 30, 2026, the Company reported net loss from continuing operations of $1.8 million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s consolidated financial statements have been prepared assuming the Company will continue as a going concern. They do not include any adjustments that might result from the outcome of this uncertainty.

Historically, the Company has funded operations primarily through equity issuances. The Company expects to seek additional capital through equity or other financing arrangements; however, there can be no assurance that such financing will be available on acceptable terms, or at all. If the Company is unable to obtain adequate funding, it may be required to significantly reduce or cease operations.

Off-Balance Sheet Arrangements

None.

Critical Accounting Estimates and Policies

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported revenues and expenses. Actual results may differ from those estimates.

Significant estimates include:

• Fair value of intangible assets acquired in asset acquisitions
• Goodwill impairment assessments
• Valuation of stock-based compensation
• Fair value of contingent consideration
• Revenue recognition judgments, including principal versus agent considerations
• Deferred tax valuation allowances

The Company considers the valuation of intangible assets and goodwill to be its most critical accounting estimates due to the significant judgment involved in determining fair value and assessing impairment.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. Revenue is recognized when control of the promised services is transferred to customers in an amount that reflects the consideration the Company expects to receive.

The Company’s primary revenue source as of June 30, 2026 is telecommunications services provided through its Auralink operations.

Telecommunications Revenue

The Company generates revenue from wholesale voice termination and SMS transmission services under bilateral carrier agreements. Pricing is established through contractual rate schedules based on destination and service type. Each voice call or SMS message represents a distinct performance obligation. Revenue is recognized at a point in time when delivery is completed and control transfers to the customer, typically upon successful transmission. The Company acts as principal in these arrangements, as it controls routing infrastructure, establishes pricing, and bears delivery risk. Accordingly, revenue is recognized on a gross basis. Settlements with counterparties may occur on a net basis operationally; however, revenue and related costs are recorded gross in accordance with ASC 606.

Discontinued Operations

Revenue streams associated with legacy marketplace, consulting, and staffing operations have been discontinued and are presented within discontinued operations.

Intangible Assets

Intangible assets consist primarily of acquired technology and customer-related assets obtained through asset acquisitions in 2024 and 2025. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives.

The Company evaluates intangible assets for impairment when events or changes in circumstances indicate that carrying amounts may not be recoverable.

Goodwill

Goodwill represents the excess of purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is not amortized but is tested annually for impairment or more frequently if indicators arise.

The Company performs its annual impairment assessment as of December 31. During 2025, the assessment resulted in full impairment of the remaining goodwill balance.

Impairment testing may involve significant judgment, including assumptions regarding projected cash flows, discount rates, growth rates, and market conditions.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718. Compensation expense is measured at the grant-date fair value of the award and recognized over the requisite service period.

The fair value of stock options is estimated using the Black-Scholes option pricing model, which requires assumptions regarding volatility, expected term, risk-free interest rates, and forfeiture rates.

Recently Issued Accounting Pronouncements

The Company adopted ASU 2023-09 (Income Taxes – Improvements to Income Tax Disclosures) effective January 1, 2025. Adoption did not have a material impact on the consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03 (Expense Disaggregation Disclosures), effective for fiscal years beginning after December 15, 2026. The Company is currently evaluating the impact of this standard.

Evaluation of Disclosure Controls and Procedures

(a) Disclosure Controls and Procedures

Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2026, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on this evaluation, and due to the remediation of the material weaknesses in internal control over financial reporting described below, management concluded that our disclosure controls and procedures were effective as of June 30, 2026.

(b) Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. Management evaluated the effectiveness of the Company’s internal control over financial reporting as of June 30, 2026 using the criteria established in the COSO Internal Control — Integrated Framework (2013).

Management previously identified material weaknesses as of December 31, 2024, including:

• Insufficient segregation of duties within the accounting function due to limited personnel resources; and
• Lack of sufficient in-house technical accounting expertise to evaluate complex or non-routine transactions.

During 2025, the Company undertook steps to strengthen its internal control environment, including:

• Enhancing review-level controls over financial reporting;
• Expanding documentation of technical accounting analyses;
• Increasing coordination among legal, finance, and operational personnel; and
• Hiring experienced internal and external accounting professionals.

Based on the remediation efforts and testing performed, management concluded that the previously identified material weaknesses had been remediated as of March 31, 2026 and that the Company’s internal control over financial reporting was effective as of that date.

Changes in Internal Control over Financial Reporting

Except for the remediation efforts described above, there were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2026 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Factors that could cause or contribute to differences in our future financial and operating results include those discussed in the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025, filed April 15, 2026. These risks are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on us. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.