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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2023
Income Taxes [Abstract] |
INCOME TAXES | NOTE 13 – INCOME TAXES The provision (benefit) from income taxes was as follows:
|  |  | December 31, |
|  |  | 2023 |  |  |  | 2022 |
Current |  |  |  |  |  |  |  |
U.S. Federal |  | $ | - |  |  | $ | - |
State and local |  |  | - |  |  |  | - |
|  | $ | - |  |  | $ | - |
Deferred |  |  |  |  |  |  |  |
U.S. Federal |  | $ | - |  |  | $ | - |
State and local |  |  | - |  |  |  | - |
|  | $ | - |  |  | $ | - |
Total |  |  |  |  |  |  |  |
U.S. Federal |  | $ | - |  |  | $ | - |
State and local |  |  | - |  |  |  | - |
|  | $ | - |  |  | $ | - |
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, |
|  | 2023 |  |  | 2022 |
Deferred Tax Assets: |  |  |  |  |  |
Tax benefit of net operating loss carry-forward |  | $ | 62,608,641 |  |  | $ | 27,478,875 |
Accrued liabilities |  |  | 336,802 |  |  |  | 96,363 |
Stock based compensation |  |  | 223,047 |  |  |  | 949,089 |
Depreciation |  |  | 183,361 |  |  |  | 91,639 |
Inventory reserve |  |  | 29,962 |  |  |  | 27,321 |
Investment impairment |  |  | 448,289 |  |  |  | - |
Operating lease liabilities |  |  | 1,910,688 |  |  |  | 827,607 |
R&D capitalization |  |  | 8,793,631 |  |  |  | 5,683,784 |
R&D credit |  |  | 751,488 |  |  |  | 751,488 |
Other |  |  | 1,446,535 |  |  |  | - |
Total deferred tax assets |  |  | 76,732,444 |  |  |  | 35,906,166 |
Deferred Tax Liabilities: |  |  |  |  |  |  |  |
Amortization |  |  | - |  |  |  | (3,078 | )
Intangibles |  |  | (6,450,630 | ) |  |  | (5,885,385 | )
Deferred rent |  |  | (1,379,646 | ) |  |  | (798,745 | )
Total deferred tax liabilities |  |  | (7,830,276 | ) |  |  | (6,687,208 | )
Total net deferred tax assets |  |  | 68,902,168 |  |  |  | 29,218,958 |
Valuation allowance for deferred tax assets |  |  | (68,902,168 | ) |  |  | (29,218,958 | )
Deferred tax assets, net of valuation allowance |  | $ | - |  |  | $ | - |
The change in the Company’s valuation allowance is as follows:
|  | Years Ended December 31, |
|  | 2023 |  |  | 2022 |
Beginning of the year |  | $ | 29,218,958 |  |  | $ | 14,528,920 |
Change in valuation account |  |  | 39,683,210 |  |  |  | 14,690,038 |
End of the year |  | $ | 68,902,168 |  |  | $ | 29,218,958 |
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:
|  | Years Ended December 31, |
|  | 2023 |  |  | 2022 |
U.S. federal statutory rate |  |  | (21.0 | )% |  |  | (21.0 | )%
Federal true ups |  |  | 0.88 | % |  |  | 0.40 | %
State taxes, net of federal benefit |  |  | (4.86 | )% |  |  | (7.61 | )%
Change in valuation allowance |  |  | 24.24 | % |  |  | 20.06 | %
Goodwill Impairment |  |  | - | % |  |  | 5.57 | %
Stock compensation |  |  | 0.94 | % |  |  | 2.02 | %
Foreign rate differential |  |  | (0.35 | )% |  |  | - | %
Nondeductible expenses |  |  | 0.06 | % |  |  | 0.56 | %
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. Effective with the issuance of redeemable preferred stock on July 21, 2023, Ondas Networks will not be a member of the Company consolidated US tax filing. As of December 31, 2023 and 2022, the Company and Ondas 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, 2023 and December 31, 2022, the Company and Ondas Networks, respectively, had Federal NOLs of $59 million and $50 million, and of $42 million and $44 million, generated in 2018 through 2023 that have no expiration. As of December 31, 2023 and 2022, the Company and Ondas Networks, respectively, had State NOLs available to offset future taxable income of $43 million and $92 million, and of $35 million and $72 million expiring from 2038 through 2043. As of December 31, 2023 and 2022, the Company and Ondas Networks, respectively, had approximately $0 and $752,000, and $0 and $752,000, of Federal research and development credits available to offset future tax liability expiring from 2038 through 2040. As of December 31, 2023 and December 31, 2022, the Company had approximately $127 million and $0 of Israeli NOL’s. The Company’s Federal income tax returns for the 2020 to 2022 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 2019 to 2022 tax years remain open to examination. In accordance with Section 382 of the Internal Revenue code, the usage of the Company’s Federal Carryforwards could be limited in the event of a change in ownership. As of December 31, 2021, the Company completed an analysis and determined that there were multiple ownership changes. Provided sufficient taxable income is generated the annual base limitation plus increased limitation calculated pursuant to IRS Notice 2003-65 will allow the Company to utilize all existing losses within the carryover periods. 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, 2023, 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.

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