Phunware, Inc. Income Taxes Disclosure

11. Income Taxes

Deferred income taxes are recognized for the tax consequences in future years for differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the combination of the tax payable for the year and the change during the year in deferred tax assets and liabilities.

For the years ended December 31, 2025 and 2024, we had net losses before income taxes of $11.4 million and $10.3 million, respectively.

The state and local income tax benefit, net of federal impact, was approximately $0.4 million for the year ended December 31, 2025. This expense is primarily driven by income tax filings and the recognition of state net operating losses in California, Massachusetts, and New York State, which collectively represent the majority of the Company's state and local income tax impact. The Company's state tax rate varies based on the apportionment of income to these and other jurisdictions. The income tax paid for the years ended December 31, 2025 and 2024 were $25 thousand and $14 thousand, respectively.

As of December 31, 2025, we had net operating loss ("NOL") carryforwards of approximately $276.4 million and $247.8 million for federal and state income tax purposes, respectively. The federal net operating losses of $85.7 million which were generated in tax years beginning before January 1, 2018, will begin to expire in 2030 if not utilized. The balance of the net operating losses, $190.7 million do not expire. The state net operating losses expire at various times depending on the state with a majority beginning to expire in 2030 if not utilized.

As of December 31, 2025, we had research and development ("R&D") credit carryforwards of approximately $2.3 million and $1.2 million for federal and state income tax purposes, respectively. The federal and Texas R&D credits will begin to expire in 2034, unless previously utilized. California R&D credits carry forward indefinitely.

Utilization of the NOL and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code (IRC) of 1986, as amended (the "Code"), as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future taxable income. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than fifty (50) percentage points of the outstanding stock of a company by certain stockholders.

As of December 31, 2025, we had not yet completed an analysis of the deferred tax assets for our NOL and tax credits. The future utilization of our net operating loss to offset future taxable income may be subject to an annual limitation under IRC Section 382 as a result of ownership changes that may have occurred previously or that could occur in the future. We have not yet determined whether such an ownership change has occurred. In order to make this determination, we will need to complete an analysis regarding the limitation of the net operating loss.

We have established a full valuation allowance for our deferred tax assets due to uncertainties that preclude us from determining that it is more likely than not that we will be able to generate sufficient taxable income to realize such assets. We monitor positive and negative factors that may arise in the future as we assess the need for a valuation allowance against our deferred tax assets. As of December 31, 2025 and 2024, we have a valuation allowance of approximately $68.9 million and $67.1 million, respectively, against our deferred tax assets.

The technical merits of a tax position derive from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings and case law) and their applicability to the facts and circumstances of the tax position. If a tax position does

not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate resolution with a taxing authority.

Uncertain tax positions are evaluated based upon the facts and circumstances that exist at each reporting period. Subsequent changes in judgment based upon new information may lead to changes in recognition, de-recognition, and measurement. Adjustments may result, for example, upon resolution of an issue with the taxing authorities, or expiration of a statute of limitations barring an assessment for an issue.

Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. We have no accrual for interest and penalties on the consolidated balance sheets and has not recognized interest and/or penalties in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2025 and 2024.

We are subject to taxation in the United States and various state jurisdictions. Our tax years from inception are subject to examination by the United States and state taxing authorities due to the carryforward of unutilized NOLs.

We have ownership interest in controlled foreign corporations. During 2025, we analyzed the potential impact of the Global Intangible Low-Taxed Income and the Base Erosion and Anti-Abuse Tax provisions of the Tax Cuts and Jobs Act signed into law in 2017. Based on the foreign subsidiaries' tax position, we will not incur any impact relating to these two provisions.

The One Big Beautiful Bill Act of 2024 (the "OBBBA") was enacted in the United States on July 4, 2025. The OBBBA includes a U. S. income tax provision for the reinstatement of immediate expensing of domestic research and experimentation ("R&E") expenditures under Section 174 and acceleration of remaining unamortized R&E capitalized in tax year 2024, resulting in a one-time accelerated amortization deduction of approximately $15.9 million. The OBBBA did not have a material impact on the Company's effective tax rate for the year ended December 31, 2025, but resulted in a significant reduction in the Company's intangible deferred tax asset and corresponding valuation allowance offset.