Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

Note 10 – Income Taxes


Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s deferred tax assets relate primarily to its net operating loss carryforwards and other balance sheet basis differences. In accordance with ASC 740, “Income Taxes,” the Company recorded a valuation allowance to fully offset the gross deferred tax asset, because it is not more likely than not that the Company will realize future benefits associated with these deferred tax assets at December 31, 2018 and 2017.


At December 31, 2018 and 2017, the Company had deferred tax assets of $12.1 million and $7.9 million, respectively, against which a full valuation allowance of $12.1 million and $7.9 million, respectively, had been recorded. The change in the valuation allowance for the year ended December 31, 2018 was an increase of $4.2 million. The increase in the valuation allowance for the year ended December 31, 2018 was mainly attributable to increases in net operating losses, non-deductible share based compensation, and accrued liabilities, which resulted in an increase in the deferred tax assets with a corresponding valuation allowance. Significant components of the Company’s deferred tax assets at December 31, 2018 and 2017 were as follows: 


    December 31,  
    2018     2017  
Deferred tax assets:                
Net operating loss carryforwards – Federal and state.   $ 1,413       291  
Net operating loss carryforwards – Israel     8,453       6,295  
Share based compensation     735        
Accrued liabilities     1,543       1,269  
Gross deferred tax assets     12,144       7,855  
Valuation allowance     (12,144 )     (7,855 )
Gross deferred tax assets after valuation allowance   $     $  


A reconciliation of the federal statutory tax rate and the effective tax rates for the years ended December 31, 2018 and 2017 is as follows:


    For the Year Ended  
    December 31,  
    2018     2017  
U.S. federal statutory tax rate     21.0 %     34.0 %
State income taxes, net of federal benefit     1.1       1.1  
U.S. vs. foreign tax rate differential     0.9       (8.8 )
Impact of tax law change           (3.0 )
Non-deductible expenses     (3.7 )     (0.1 )
Change in valuation allowance     (19.3 )     (23.2 )
Effective tax rate     %     %


The Company had approximately $48.2 million and $29.5 million of gross net operating loss (“NOL”) carryforwards (federal, state and Israel) as of December 31, 2018 and 2017, respectively. Sections 382 and 383 of the Internal Revenue Code, and similar state regulations, contain provisions that may limit the NOL carryforwards available to be used to offset income in any given year upon the occurrence of certain events, including changes in the ownership interests of significant stockholders. In the event of a cumulative change in ownership in excess of 50% over a three-year period, the amount of the NOL carryforwards that the Company may utilize in any one year may be limited.


A reconciliation of the Company’s NOLs for the years ended December 31, 2018 and 2017 is as follows:


    December 31,  
    2018     2017  
U.S. Federal NOL’s   $ 5,720     $ 1,074  
U.S. State NOL’s     5,720       1,074  
Israel NOL’s     36,751       27,371  
Total NOL’s   $ 48,191     $ 29,519  


The Company’s federal and state NOL’s of $1.1 million and $5.7 million, respectively, begin to expire after 2036 through 2037. The Company’s federal NOL of $4.6 million, generated in 2018, and the Israel NOL of $36.8 million do not expire.


The Tax Cuts and Jobs Act (the “Act”) was enacted in December 2017. Among other things, the Act reduced the U.S. federal corporate tax rate from 35 percent to 21 percent, eliminated the alternative minimum tax (“AMT”) for corporations, and provided that AMT credit carryforwards are refundable over a period of time beginning with the Company’s 2018 tax year through 2021. The reduction of the corporate tax rate resulted in a write-down of the Company’s gross deferred tax assets of approximately $0.4 million, and a corresponding write-down of the valuation allowance as of December 31, 2017.