ACORN ENERGY, INC. Income Taxes Disclosure

NOTE 10—INCOME TAXES

 

At each reporting period, the Company considered all the positive and negative evidence related to the likelihood of realization of the deferred tax assets and determined, based on the weight of available evidence, it is more likely than not that some of the deferred tax assets will be realized. As of December 31, 2025 and 2024 the Company recorded $15,513,000 and $15,933,000 of deferred tax assets before valuation allowance, respectively, which was offset by $10,326,000 and $11,400,000 of valuation allowance, respectively. The Company has recorded deferred tax liabilities of $288,000 and $98,000 as of December 31, 2025 and 2024, respectively, which have all been determined to be sources of future taxable income. The reduction of $1,074,000 of the valuation allowance is based on cumulative positive operating results over the prior three-year period and expectations about generating U.S. taxable income in the future. The remaining valuation allowance relates primarily to anticipated expirations of U.S. net operating losses prior to utilization based on our forecasts of future taxable income.

 

(a) Composition of income before income taxes is as follows (in thousands):

 SCHEDULE OF COMPOSITION OF INCOME (LOSS) BEFORE INCOME TAXES

		Year ended December 31,
		2025				2024
Domestic		$	2,110			$	2,010

 

 

Income tax (benefit) expense consists of the following (in thousands):

 SCHEDULE OF INCOME TAX (BENEFIT) EXPENSE

		2025				2024
		Year ended December 31,
		2025				2024
Current:
Federal		$	—			$	—
State and local			30				123
Current income tax expense			30				123
Deferred:
Federal			(554	)			(4,209	)
State and local			90				(226	)
Deferred income tax expense (benefit)			(464	)			(4,435	)
Total income tax expense (benefit)		$	(434	)		$	(4,311	)

 

(b) Effective Income Tax Rates

 

Set forth below is a reconciliation between the federal tax rate and the Company’s effective income tax rates with respect to continuing operations:

 SCHEDULE OF RECONCILIATION BETWEEN FEDERAL TAX RATE AND EFFECTIVE INCOME TAX RATES

		2025				2025
		Year ended December 31,
		2025				2025
Statutory Federal rates		$	443				21	%
Increase (decrease) in income tax rate resulting from:
Nondeductible/nontaxable items			-				-
Stock compensation			(32	)			(2	)%
Other nondeductible/nontaxable items			5				1	%
State and local income taxes, net of federal taxes(a)			72				3	%
Rate change
Rate change adjustment
Deferred true-ups			2				—
NOL Expirations			41				2	%
Other, net (primarily permanent differences)			-				-
Valuation allowance			(965	)			(46	)%
Effective income tax rates			(434	)			(21	)%

 

(a)

For the year ended December 31, 2025, state taxes in the following states listed below made up a majority (greater than 50% of the tax effect of the state and local income taxes, net of federal taxes rate reconciliation line item).

 

Georgia

North Carolina

Pennsylvania

 

The rate reconciliation above has been adjusted to be presented in compliance with the guidance under ASU 2023-09. The Company has adopted this guidance on a prospective basis.

 

As previously disclosed for the year ended December 31, 2024, prior to the adoption of ASU No. 2023-09, the following reconciles the federal tax rate and the Company’s effective income tax rates with respect to continuing operations:

 

		Year ended December 31,
		2024
Statutory Federal rates			21	%
Increase (decrease) in income tax rate resulting from:
Nondeductible/nontaxable items			0	%
State taxes			3	%
Rate change			(3	)%
Rate change adjustment			—	%
Deferred true ups			(2	)%
Valuation allowance			(233	)%
Effective income tax rates			(214	)%

 

 

(c) Analysis of Deferred Tax Assets and (Liabilities) (in thousands):

 SCHEDULE OF DEFERRED TAX ASSETS AND (LIABILITIES)

		2025				2024
		As of December 31,
		2025				2024
Deferred tax assets (liabilities) consist of the following:
Employee benefits and deferred compensation		$	83			$	72
Deferred revenue			12				215
Lease liability			232				22
Intangible assets			100				218
Other temporary differences			135				113
Section 174 expenditures			526				440
NOL and capital loss carryforwards			14,425				14,853
Total deferred tax assets			15,513				15,933
Valuation allowance			(10,326	)			(11,400	)
Net deferred tax asset			5,187				4,533
Right-of-use asset			(215	)			(19	)
Fixed assets			(73	)			(79	)
Total deferred tax liabilities			(288	)			(98	)
Net deferred tax assets		$	4,899			$	4,435

 

Valuation allowances relate primarily to NOL carryforwards related to the Company’s consolidated tax losses as well as state tax losses related to the Company’s OmniMetrix subsidiary. During the years ended December 31, 2025 and 2024, the valuation allowance decreased by $1,074,000 and $4,686,000, respectively.

 

(d) Summary of Tax Loss Carryforwards

 

As of December 31, 2025, the Company had various NOL carryforwards expiring as follows (in thousands):

 SCHEDULE OF NET OPERATING LOSS CARRYFORWARDS

Expiration		Federal				State
2026 – 2031*			2,382				—
2032 – 2037			58,149				14,818
Subject to Expiration			58,149				14,818
Unlimited			4,958				1,877
Total		$	65,489			$	16,695

 

*

The utilization of a portion of these NOL carryforwards is limited due to limits on utilizing NOL carryforwards under Internal Revenue Service regulations.

 

The utilization of the Company’s pre 2012 federal and state net operating losses may be subject to limitation under the Internal Revenue Code, as well as similar state provisions. Such limitations may result in the expiration of those net operating loss (NOL) carryforwards before their utilization. During 2025 the Company completed a Section 382 study and determined that no change of control occurred and the NOLs generated during the period of 2012 – 2024 will not be subject to limitation. Future changes in the Company’s stock ownership, which may be outside of the Company’s control may trigger an “ownership change” which could result in limitations under the Internal Revenue Code.

 

The Company maintains a valuation allowance against certain deferred tax assets where management has determined it is more-likely-than-not that such assets will not be realized. Any limitation under Section 382 may require the Company to increase its valuation allowance or could otherwise adversely impact the timing of tax benefits recognized in future periods.

 

On July 4, 2025, the One Big Beautiful Bill was enacted (“OBBBA”), introducing significant and wide-ranging changes to the U.S. federal tax system. Significant components include restoration of 100% accelerated tax depreciation on qualifying property including expansion to cover qualified production property. Another major aspect includes the return to immediate expensing of domestic research and experimental expenditures (“R&E”) which in some cases may include retroactive application back to 2021 for businesses with gross receipts of less than $31 million or accelerated tax deductions of R&E that was previously capitalized for larger businesses. The legislation also reinstates EBITDA-based interest deductions for tax purposes and makes several business tax incentives permanent. Less favorable business provisions include limitations on tax deductions for charitable contributions.

 

 

The Company is also subject to certain non-income taxes such as value added taxes, sales taxes, and property taxes. The Company has taken certain positions that management feels, although not free from doubt, should not result in a successful challenge by certain tax authorities.