ENvue Medical, Inc. Income Taxes Disclosure

NOTE 20 – INCOME TAXES

 

U.S. tax reform:

 

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes significant changes to the U.S. corporate income tax system including but not limited to: a federal corporate rate reduction from 35% to 21%; creation of the base erosion anti-abuse tax (“BEAT”), introduction of the Global Intangible Low Taxed Income (“GILTI”) provisions; the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system; modifications to the allowance of net business interest expense deductions; modification of net operating loss provisions; changes to 162(m) limitation rules and bonus depreciation provisions. The change to a modified territorial tax system resulted in a one-time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. (the “Transition Tax”), with future dividend distributions not subject to U.S. federal income tax when repatriated. A majority of the provisions in the Tax Act became effective January 1, 2018.

 

The Tax Act added a new code section 951A, which requires a U.S. shareholder of a Controlled Foreign Corporation (“CFC”) to include in current taxable income, its GILTI in a manner similar to Subpart F income. The statutory language also allows a deduction for corporate shareholders equal to 50% of the GILTI inclusion, which would be reduced to 37.5% starting in 2026. In general, GILTI imposes a tax on the net income of foreign corporate subsidiaries in excess of a deemed return on their tangible assets. The Company is subject to GILTI for 2018 and future periods. The Company is electing to account for the income tax effects of GILTI as a “period cost,” an income tax expenses in the year the tax is incurred.

 

On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act (“OBBBA”). For the year ending December 31, 2025, the OBBBA the law brought a return to 100% bonus depreciation, full expensing of domestic R&E costs, and modified Section 163(j) rules previously enacted by the TCJA. The law also brought changes related to the GILTI regime, which will now be called Net CFC Tested Income, a reduction of the Section 250 deduction from 50% to 40%, and the increase in allowable foreign tax credits. The non-domestic changes generally result in a slight increase in effective tax rate on certain foreign income, and take place for years ending after December 31, 2025. Ceva has implemented the domestic changes applicable to the year ending December 31, 2025, and will continue to analyze the impact on foreign changes for the year ending December 31, 2026. The adoption of the OBBBA did not have a material impact on the Company’s consolidated financial statements or related deferred tax balances.

 

Foreign tax:

 

Tax rates applicable to the income of the Israeli subsidiaries:

 

The Israeli corporate tax rate in 2025 and 2024 is 23%. One of the Company’s Israeli subsidiaries has final tax assessments through 2017.

 

Tax loss carryforwards:

 

As of December 31, 2025, the Company and its subsidiary had federal and state net operating loss carryforwards for income tax purposes of approximately $55,320 and $6,004, respectively. Of the federal net operating loss carryforward, approximately $41,362 may be carried forward indefinitely. The remaining approximately $13,959 of federal net operating loss carryforward is subject to a 20-year carryforward limitation but may be used to fully offset taxable income in the year of utilization. The state net operating loss carryforwards are subject to varying carryforward periods under applicable state tax laws.

 

Utilization of the U.S. federal and state net operating loss carryforwards may be subject to annual limitations under Section 382 of the Internal Revenue Code of 1986, as amended, in the event of a cumulative change in ownership of more than 50% within any three-year period. The Company has not performed a Section 382 analysis as of the balance sheet date; however, management does not believe that any such limitation would have a material impact on the financial statements, as the related deferred tax assets are fully offset by a valuation allowance.

  

 

ENVUE MEDICAL, INC.

Notes to Consolidated Financial Statements

(Amounts in thousands except share and per share data)

 

Tax returns:

 

Income tax returns are filed in the United States and various state jurisdictions. The Company is not currently under examination by income tax authorities in federal or state jurisdictions. Due to net operating loss carryforwards, the Company’s returns remain open for all prior years.

 

Income tax expense is comprised of the following:

 

SCHEDULE OF PROVISION FOR INCOME TAXES EXPENSES

			1				2
		Year ended December 31,
		2025				2024
Current Tax
Federal		$	-			$	-
State			1				-
Foreign			65				19
Total		$	66			$	19
Deferred Tax
Federal		$	(331	)		$	-
State			(42	)			-
Foreign		$	-				-
Total		$	(373	)		$	-
Total taxes on income (benefit)		$	(307	)		$	19

 

Loss before taxes:

 

SCHEDULE OF INCOME BEFORE TAXES ON DOMESTIC AND FOREIGN

Foreign			(221	)			(89	)
		Year ended December 31,
		2025				2024
Domestic		$	18,713			$	3,775
Foreign			(221	)			(89	)
Loss before taxes		$	18,492			$	3,686

 

Reconciliation between the Company’s effective tax rate and the U.S. statutory rate:

 

SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION

The company adopted ASU 2023-09 for the year ended December 31, 2025, on a prospective basis. A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company, and the actual tax expense as reported in the consolidated statements of loss is as follows:

 

Nontaxable or nondeductible items:
		Year ended December 31,
		2025
		Amount				Rate
US federal statutory tax rate		$	(3,883	)			21	%
State and local income taxes, net of federal			(42	)			0.23	%
Foreign tax effects			32				(0.17	)%
Nontaxable or nondeductible items:
Goodwill impairment			2,207				(11.93	)%
Warrants remeasurement			(1,303	)			7.05	%
Other			152				(0.82	)%
Change in valuation allowance			2,444				(13.22	)%
Other adjustments			86				(0.47	)%
Income tax expense (benefit)		$	(307	)			1.66	%

 

Reconciliation between the Company’s effective tax rate and the U.S. statutory rate prior to the adoption of ASU 2023-09:

 

		Year ended December 31,
		2024
Federal income tax benefit at statutory rate			21.00	%
State income taxes, net of federal benefit			0.31	%
Foreign rate differential			0.04	%
Permanent Items			(0.04	)%
Change in valuation allowance			(21.51	)%
Return to provision adjustments			0.40	%
Other			0.30	%
Effective tax rate			0.51	%

 

 

ENVUE MEDICAL, INC.

Notes to Consolidated Financial Statements

(Amounts in thousands except share and per share data)

 

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:

SCHEDULE OF DEFERRED TAX ASSETS 

		2024				2023
		Year ended December 31,
		2025				2024
Deferred tax assets:
Net operating loss carryforward		$	12,778			$	9,032
R&D expense			164				207
Capital loss carryforward			5				6
Arbitration and other accrued expenses			379				385
Stock compensation			539				581
Lease liability			29				17
Other			42				-
Total deferred tax assets before valuation allowance			13,936				10,228
Valuation allowance			(13,009	)			(10,204	)
Net deferred tax asset			927				24
Deferred tax liabilities:
Property and equipment			(15	)			(5	)
Intangible Assets			(885	)			-
Right-of-use Asset			(27	)			(19	)
Net deferred tax asset		$	-			$	-

 

The net change in the total valuation allowance for the year ended December 31, 2025 was a decrease of $2,805. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences and tax loss carryforward are deductible. Management considers the projected taxable income and tax-planning strategies in making this assessment.

 

The Company recorded a valuation allowance for certain of its deferred tax assets. The Company concluded that, based on the weight of available positive and negative evidence, it was more likely than not that the deferred tax assets would not be recoverable due to uncertainty regarding future taxable income. In assessing the realizability of deferred tax assets, the key assumptions used to determine positive and negative evidence included the Company’s current trends related to actual taxable earnings or losses, and expected future reversals of existing taxable temporary differences, as well as projections for future annual results.

 

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. 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.

 

Income tax payments:

 

Pursuant to the disclosure requirements of ASU 2023-09, below is a summary of income taxes paid, net of refunds received, by jurisdiction for the year ended December 31,2025:

 

SUMMARY OF INCOME TAXES PAID, NET OF REFUNDS RECEIVED

		Year ended December 31,
		2025
Cash taxes paid (refunds received)
Federal income taxes			32
Foreign:
Israel			20
Income taxes, net of amounts refunded		$	52

 

 

ENVUE MEDICAL, INC.

Notes to Consolidated Financial Statements

(Amounts in thousands except share and per share data)