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INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 14 – INCOME TAXES

 

As of December 31, 2021, the U.S. Company had federal and pre-apportioned state net operating loss carry forward for tax purposes of approximately $30,010. $16,056 of the federal net operating loss can be carried forward indefinitely but is limited to 80% utilization and $13,959 of the federal net operating loss can be offset against taxable income for 20 years. State net operating losses can also be carried forward for 20 years. Utilization of the U.S. net operating losses may be subject to substantial limitations in the event of a change of ownership under the provisions of the Internal Revenue Code of 1986. The Company has not performed an analysis but that the potential impact of any limitation would not be material to the financial statements since the respective DTAs are fully offset by a valuation allowance.

 

Income tax expense is comprised of the following:

 

           
   Year ended December 31, 
   2021   2020 
Current Tax          
Federal          
State  $-   $- 
Foreign   32    15 
Total  $32   $15 
           
Deferred Tax          
Federal  $(1,263)  $(584)
State   (131)   (5)
Foreign  $(4)   2 
Total  $(1,398)  $(587)
Less: Valuation Allowance   

1,398

    587 
Total Tax  $32   $15 

 

The difference between the statutory tax rate of the Company and the effective tax rate is primarily the result of tax benefits generated by the Company and its subsidiary which have not been recognized due to the uncertainty that such tax benefits will ultimately be realized. A reconciliation of the statutory U.S Federal rate to the Company’s effective tax rate is as follows:

 

           
   Year ended December 31, 
   2021   2020 
Federal income tax benefit at statutory rate   21.00%   21.00%
State income taxes, net of federal benefit   0.92%   0.12%
Foreign rate differential   0.02%   -0.08%
Permanent Items   -13.04%   2.22%
Change in valuation allowance   -9.81%   -13.63%
Return to provision adjustments   -0.01%   -4.03%
Forfeited options   -0.16%   -7.33%
Other   0.86%   -1.39%
Effective tax rate   -0.22%   -0.34%

 

 

Foreign tax

 

Tax rates applicable to the income of the Israeli subsidiary:

 

The Israeli corporate tax rate in 2021 and 2020 is 23%.

 

The subsidiary has final tax assessments through 2016.

 

Loss before taxes:

 

         
   Year ended December 31, 
   2021   2020 
         
Domestic  $14,333   $4,380 
Foreign   (82)   (69)
Loss before taxes  $14,250   $4,311 

 

Deferred income taxes

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:

 

           
   Year ended December 31, 
   2021   2020 
Deferred tax assets:          
Net operating loss carry forward  $6,563   $5,712 
Arbitration accrual   

414

    

-

 
Stock compensation and other   327    175 
Deferred tax assets before valuation allowance   7,304    5,887 
Valuation allowance   (7,304)   (5,887)
Net deferred tax asset  $-   $- 

 

For the year ended December 31, 2021 and 2020, the net increases in valuation allowance of $1,417 and $596, respectively was primarily driven by the increase in net operating loss carryforwards.

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized.

 

The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are able to be utilized. Based on consideration of these factors, the Company concluded that all of its recorded deferred tax assets are not more likely than not realizable and recorded a full valuation allowance at December 31, 2021 and 2020.

 

The Company considers the earnings of its non-U.S. subsidiary to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. We have not recorded a deferred tax liability related to the U.S. federal and state income taxes as an estimate of undistributed earnings of foreign subsidiaries would not be practicable to estimate at this time. If the Company does decide to repatriate the foreign earnings, we would need to adjust our income tax provision in the period we determined that the earnings will no longer be indefinitely invested outside the United States.

 

 

Reconciliation of the theoretical tax expense to the actual tax expense

 

The main reconciling items between the statutory tax rate of the Company and the effective tax rate are the non-recognition of tax benefits from accumulated net operating loss carryforward among the Company and its subsidiary due to the uncertainty of the realization of such tax benefits.

 

The Company recognizes interest and penalties related to unrecognized tax benefits in tax expense. During the year ended December 31, 2021, the Company accrued $0 for interest and penalties expenses related to uncertain tax positions.

 

U.S. federal and New York State income taxes are open for examination for years 2018-2021 and Israel tax returns are open for examination for years 2018-2021.