Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes
12 Months Ended
Dec. 31, 2019
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, 2019 and 2018.


At December 31, 2019 and 2018, the Company had deferred tax assets of $17.3 million and $12.1 million, respectively, against which a full valuation allowance of $17.3 million and $12.1 million, respectively, had been recorded. The change in the valuation allowance for the year ended December 31, 2019 was an increase of $5.2 million. The increase in the valuation allowance for the year ended December 31, 2019 was mainly attributable to increases in net operating losses and non-deductible share based compensation, 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, 2019 and 2018 were as follows:  


    December 31,  
    2019     2018  
Deferred tax assets:                
Net operating loss carryforwards – Federal and state   $ 2,183       1,413  
Net operating loss carryforwards – Israel     12,680       8,453  
Share based compensation     1,004       735  
Accrued liabilities     1,399       1,543  
Gross deferred tax assets     17,266       12,144  
Valuation allowance     (17,266 )     (12,144 )
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, 2019 and 2018 is as follows:


    For the Year Ended  
    December 31,  
    2019     2018  
U.S. federal statutory tax rate     21.0 %     21.0 %
State income taxes, net of federal benefit     0.9       1.1  
U.S. vs. foreign tax rate differential     1.7       0.9  
Non-deductible expenses     (1.4 )     (3.7 )
Change in valuation allowance     (22.2 )     (19.3 )
Effective tax rate     %     %


The Company had approximately $71.0 million and $48.2 million of gross net operating loss ("NOL") carryforwards (federal, state and Israel) as of December 31, 2019 and 2018, 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, 2019 and 2018 is as follows:


    December 31,  
    2019     2018  
U.S. Federal NOL's   $ 8,630     $ 5,720  
U.S. State NOL's     7,219       5,720  
Israel NOL's     55,132       36,751  
Total NOL's   $ 70,981     $ 48,191  


The Company's federal and state NOL's of $3.3 million and $7.2 million, respectively, begin to expire after 2036 through 2040. The Company's federal NOL of $5.3 million, generated since 2018, and the Israel NOL of $55.1 million do not expire.


The Company follows guidance on accounting for uncertainty in income taxes which prescribes a minimum threshold a tax position is required to meet before being recognized in the financial statements. The Company does not have any liabilities as of December 31, 2019 and 2018 to account for potential income tax exposure. The Company is obligated to file income tax returns in the U.S. federal jurisdiction, several U.S. States and Israel. Since the Company had losses in the past, all prior years that generated net operating loss carry-forwards are open and subject to audit examination in relation to the net operating loss generated from those years.