DarioHealth Corp. Income Taxes Disclosure
NOTE 15:- TAXES ON INCOME
The Company and its subsidiaries are separately taxed under the domestic tax laws of the country of incorporation of each entity.
Tax rates applicable to Labstyle:
The Corporate tax rate in Israel in 2025 and 2024 was 23%.
One Big Beautiful Bill Act
On July 4, 2025, the One Big Beautiful Bill Act was signed into law in the United States. The Act contains certain provisions related to the extent of deductibility for U.S. federal tax purposes of interest expense, R&D costs and other depreciable property, as well as changes to U.S. taxation of foreign subsidiaries’ earnings, and other U.S. corporate tax law changes. Pursuant to ASC 740, changes in tax rates and tax law are required to be recognized in the period in which the legislation is enacted. Dario evaluated the impact of this Act on its annual consolidated financial statements and related disclosures and concluded the Act does not have a material impact on its 2025 consolidated financial statements.
Net operating loss carryforward:
Labstyle has accumulated net operating losses for Israeli income tax purposes as of December 31, 2025, in the amount of approximately $273,548. The net operating losses may be carried forward and offset against taxable income from business in the future for an indefinite period.
NOTE 15:- TAXES ON INCOME (Cont.)
As of December 31, 2025, the Company, WayForward and Twill had respective U.S. federal net operating loss carryforwards of approximately $47,055, $5,803, and $156,686 of which $7,120, $371 and $18,832 were generated from tax years 2011-2017. The 2011-2017 losses can be carried forward and used to fully offset taxable income, and expire during the years 2031 to 2037. However, under IRC_Sections 382 and 383, utilization of the U.S. loss carryforward may be subject to substantial annual limitation due to the “change in ownership” provisions of the Code and similar state provisions. The annual limitations may result in the expiration of losses before utilization. A "change in ownership" occurred during 2024 when Twill was acquired by Dario, resulting in a limitation of $2,316 per year.
The remaining NOLs of the Company, WayForward and Twill are approximately $39,935, $5,432 and $137,854, and were generated in years 2018-2025. Such losses can only be used to offset 80% of taxable income, but are carried forward indefinitely (i.e., they should not expire). Utilization of the federal and state net operating losses and credits may be subject to a substantial annual limitation due to any additional ownership change.
The annual limitation may result in the expiration of certain net operating losses and credits before utilization. In the event the Company has an additional change of ownership, utilization of the carryforwards could be further restricted.
NOTE 15:- TAXES ON INCOME (Cont.)
Deferred income taxes:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:
December 31, | |||||
2025 | | 2024 | |||
Deferred tax assets: |
| | |||
Net operating loss and capital losses carry forward | $ | 80,738 | $ | 63,016 | |
Research and development expenses |
| 2,496 |
| 3,163 | |
Accrued employees costs |
| 328 |
| 432 | |
Credit losses |
| 6 |
| 36 | |
Deferred revenue |
| 14 |
| 41 | |
Debt issuance costs |
| 81 |
| 139 | |
Stock-based compensation | 6,262 |
| 3,441 | ||
R&D Capitalization under section 174 | 10,315 |
| 10,245 | ||
Accrued expenses | 73 |
| — | ||
Director Fees and Payments in Shares | 55 |
| — | ||
Depreciation | 80 |
| 72 | ||
Loan | — | 226 | |||
Intangible Assets | 222 | 240 | |||
Lease | 236 |
| 312 | ||
Deferred tax assets: | 100,906 | 81,363 | |||
Less: Valuation allowance | (96,343) | (77,189) | |||
Deferred tax assets | 4,563 | 4,174 | |||
Deferred tax liability: | |||||
Intangible Assets | (4,048) |
| (3,909) | ||
Loan | (282) |
| — | ||
ROU assets | (233) |
| (265) | ||
Deferred tax liability: | (4,563) | (4,174) | |||
Net deferred tax asset | $ | — | $ | — | |
|
| ||||
NOTE 15:- TAXES ON INCOME (Cont.)
The deferred tax balances included in the consolidated financial statements as of December 31, 2025, and December 31, 2024, are calculated according to the tax rates that were in effect as of the reporting date and do not take into account the potential effects of the changes in the tax rate.
The net change in the total valuation allowance for the year ended December 31, 2025, and December 31, 2024, was an increase of $19,154 and $18,886, respectively and is mainly relates to increase in deferred taxes on net operating loss for which a full valuation allowance was recorded. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences and tax loss carryforward are deductible. Management considers the projected taxable income and tax-planning strategies in making this assessment. In consideration of the Company’s accumulated losses and the uncertainty of its ability to utilize its deferred tax assets in the future, management currently believes that it is more likely than not that the Company will not realize all of its deferred tax assets and accordingly recorded a valuation allowance to offset the deferred tax assets.
Loss before taxes on income consists of the following:
Year ended | ||||||
December 31, | ||||||
| 2025 | | 2024 | |||
Domestic | $ | 17,708 | $ | 17,863 | ||
Foreign |
| 23,901 |
| 26,736 | ||
$ | 41,609 | $ | 44,599 | |||
Income tax expense (benefit) was as follows:
Year ended | ||||||
December 31, | ||||||
2025 | 2024 | |||||
Current: | ||||||
Federal | $ | $ | ||||
State | 83 | — | ||||
Foreign | 22 | 149 | ||||
Total current income tax expense | 105 | 149 | ||||
Deferred: | ||||||
Federal | — | (2,001) | ||||
State | — | — | ||||
Foreign | ||||||
Total deferred income tax expense (benefit) | — | (2,001) | ||||
Income tax | $ | 105 | $ | (1,852) | ||
NOTE 15:- TAXES ON INCOME (Cont.)
Reconciliation of Statutory Federal Income Tax Rate to the Effective Income Tax Rate: | ||||||
Year Ended December 31, 2025 | ||||||
Amount | Percent | |||||
U.S. federal statutory income tax (Benefit) | (8,738) | 21.00% | ||||
State and local income taxes, net of federal benefit: | ||||||
State and local income taxes, net of federal benefit (a) | 60 | (0.15)% | ||||
Foreign tax effects: | ||||||
Israel: | ||||||
Statutory tax rate difference | (484) | 1.16% | ||||
Tax impact of foreign exchange differences | (7,824) | 18.80% | ||||
Changes in valuation allowances | 13,385 | (32.17)% | ||||
Other adjustments | 116 | (0.28)% | ||||
Other foreign jurisdiction | 22 | (0.05)% | ||||
Changes in valuation allowances | 2,548 | (6.12)% | ||||
Non-taxable or non-deductible items: | ||||||
Share based compensation | 1,402 | (3.37)% | ||||
Other adjustments | (382) | 0.92% | ||||
Total effects | 8,843 | (21.25)% | ||||
Income tax expenses | 105 | (0.25)% | ||||
(a) State and local taxes in South Carolina, New York and Texas comprise the majority of this category | ||||||
For the year 2024, the main reconciling item between the statutory tax rate of the Company and the effective tax rate is the recognition of valuation allowance in respect of deferred taxes relating to accumulated net operating losses carried forward due to the uncertainty of the realization of such deferred taxes.
Income Taxes Paid: | |||
2025 | |||
US Federal | $ | — | |
US state and local: | |||
South Carolina | 21 | ||
Other | 45 | ||
Foreign: | |||
India | 186 | ||
Israel | 36 | ||
288 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 19, 2026 | Showing above |
| 2024 | Mar 10, 2025 | |
| 2023 | Mar 28, 2024 | |
| 2022 | Mar 9, 2023 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.