Ondas Inc. Income Taxes Disclosure

NOTE 16 – INCOME TAXES

 

Loss from operations before income taxes for the years ending December 31 were as follows:

 

		December 31,
(dollars in thousands)		2025				2024
United States		$	(116,726	)		$	(25,868	)
Non-United States			(16,166	)			(12,139	)
Loss before income taxes		$	(132,892	)		$	(38,007	)

 

The provision (benefit) from income taxes was as follows:

 

		December 31,
(dollars in thousands)		2025				2024
Current
U.S. Federal		$	-			$	-
State and local			-				-
Non-U.S.			504				-
		$	504			$	-
Deferred
U.S. Federal		$	-			$	-
State and local			-				-
Non-U.S.			(16	)			-
		$	(16	)		$	-
Total
U.S. Federal		$	-			$	-
State and local			-				-
Non-U.S.			488				-
		$	488			$	-

 

The effective income tax rate from operations for the years ended December 31 varies from the U.S. statutory federal income tax rate as follows. Periods presented that are prior to the adoption of ASU 2023-09 have not been adjusted.

 

		December 31, 2025
(dollars in thousands)		Amount				Percentage
U.S. Federal Statutory Rate		$	(27,907	)			21	%
State and local income tax, net of national income tax effect			-				-
Foreign tax effects
Israel
Statutory tax rate difference between Israel and United States			(323	)			0.2	%
Change in valuation allowance			4,207				(3.2	)%
Change in valuation allowance			6,505				(4.9	)%
Nontaxable or nondeductible items
Transaction costs			919				(0.7	)%
Stock-based compensation			(1,524	)			1.1	%
Other adjustments
Change in fair value of warrant liability, net			17,267				(13	)%
Deferred adjustment			1,344				(1	)%
Effective tax rate		$	488				(0.4	)%

 

On July 4, 2025, an act to provide for reconciliation to title II of H. Con. Res. 14 (known commonly as the One Big Beautiful Bill Act (“OBBBA”)) was enacted into law. The OBBBA includes eliminating the requirement to capitalize U.S. R&D, permanent extension of certain provisions of the Tax Cuts & Jobs Act of 2017 and other corporate tax impacts. The Company has considered the impact on the Consolidated and Combined Financial Statements and concluded it is immaterial.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

 

		December 31,
(dollars in thousands)		2025				2024
Deferred Tax Assets:
Tax benefit of net operating loss carry-forward		$	95,075			$	69,411
Accrued liabilities			349				570
Stock-based compensation			3,696				379
Depreciation			908				400
Amortization			-				4
Inventory reserve			291				64
Investment impairment			381				434
Operating lease liabilities			1,942				1,745
R&D capitalization			11,885				8,960
R&D credit			1,166				751
Other			2,095				1,428
Total deferred tax assets			117,788				84,146
Deferred Tax Liabilities:
Intangibles			(33,724	)			(5,603	)
Deferred rent			(1,352	)			(1,048	)
Unrealized gain			(1,373	)			-
Total deferred tax liabilities			(36,450	)			(6,651	)
Total net deferred tax assets			81,339				77,495
Valuation allowance for deferred tax assets			(95,870	)			(77,495	)
Deferred tax assets, net of valuation allowance		$	(14,531	)		$	-

 

The change in the Company’s valuation allowance is as follows:

 

		Years Ended December 31,
(dollars in thousands)		2025				2024
Beginning of the year		$	77,495			$	68,902
Change in valuation account			18,375				8,593
End of the year		$	95,870			$	77,495

 

A reconciliation of the provision for income taxes with the amounts computed by applying the Federal income tax rate to income from operations before the provision for income taxes is as follows for the year ended December 31, 2024:

 

		Year-ended December 31, 2024
U.S. federal statutory rate			21.0	%
Federal true ups			0.82	%
State taxes, net of federal benefit			1.29	%
Change in valuation allowance			(23.45	)%
Stock-based compensation			(0.25	)%
Acquisition costs			-
Foreign rate differential			0.66	%
Nondeductible expenses			(0.07	)%
Effective income tax rate			-	%

In assessing the realization of deferred tax assets, including the net operating loss carryforwards (NOLs), the Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize its existing deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period when those temporary differences become deductible. Based on its assessment, the Company has provided a full valuation allowance against its net deferred tax assets as their future utilization remains uncertain at this time.

 

As of December 31, 2025 and 2024, the Company and Networks, respectively, had Federal NOLs of approximately $1 million and $15 million generated in 2007 to 2017 which will begin to expire in 2027 through 2037. Additionally, as of December 31, 2025 and December 31, 2024, the Company and Networks, respectively, had Federal NOLs of $93 million and $69 million, and of $73 million and $59 million, generated in 2018 through 2025 that have no expiration. As of December 31, 2025 and 2024, the Company and Networks, respectively, had State NOLs available to offset future taxable income of $45 million and $93 million, and of $49 million and $93 million, expiring from 2038 through 2045. As of December 31, 2025 and 2024, Networks had approximately $752 thousand of Federal research and development credits available to offset future tax liability expiring from 2038 through 2040. As of December 31, 2025 and December 31, 2024, the Company had approximately $218 million and $134 million of Israeli NOL’s, respectively. The Company’s Federal income tax returns for the 2022 to 2024 tax years remain open to examination by the IRS. Upon utilization of Federal NOLs in the future, the IRS may examine records from the year the loss occurred, even if outside the three-year statute of limitations. The Company’s State tax returns also remain open to examination. The Company’s Israeli income tax returns for the 2021 to 2024 tax years remain open to examination.

 

The Company applies the FASB’s provisions for uncertain tax positions. The Company utilizes the two-step process to determine the amount of recognized tax benefit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the Consolidated Financial Statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest and penalties associated with uncertain tax positions as a component of income tax expense.

 

As of December 31, 2025, management does not believe the Company has any material uncertain tax positions that would require it to measure and reflect the potential lack of sustainability of a position on audit in its financial statements. The Company will continue to evaluate its uncertain tax positions in future periods to determine if measurement and recognition in its financial statements is necessary. The Company does not believe there will be any material changes in its unrecognized tax positions over the next year.