NOTE 10 - TAXES ON INCOME:
Taxes on income included in the consolidated statements of operations represent current taxes due to taxable income of the Company and its Subsidiary.
| a. | Corporate taxation in the U.S. |
The applicable corporate tax rate for the Company is 35%.
As of August 31, 2017, the Company has an accumulated tax loss carryforward of approximately $10,060 (as of August 31, 2016, approximately $8,945). Under U.S. tax laws, subject to certain limitations, carryforward tax losses expire 20 years after the year in which incurred. In the case of the Company, subject to potential limitations in accordance with the relevant law, the net loss carryforward will expire in the years 2025 through 2037.
| b. | Corporate taxation in Israel: |
The Subsidiary is taxed in accordance with Israeli tax laws. The corporate tax rates applicable to 2017, 2016 and 2015 are 24%, 25% and 26.5%, respectively.
As of August 31, 2017, the Subsidiary has an accumulated tax loss carryforward of approximately $26,881 (as of August 31, 2016, approximately $18,580). Under the Israeli tax laws, carryforward tax losses have no expiration date.
Deferred income taxes:
| August 31, | |||||||||||||
| 2017 | 2016 | 2015 | |||||||||||
| In respect of: | |||||||||||||
| Net operating loss carryforward | $ | 9,253 | $ | 9,219 | $ | 5,750 | |||||||
| Research and development expenses | 2,046 | - | 906 | ||||||||||
| Less - valuation allowance | (11,299 | ) | (9,219 | ) | (6,656 | ) | |||||||
| Net deferred tax assets | $ | - | $ | - | $ | - | |||||||
Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income. As the achievement of required future taxable income is uncertain, the Company recorded a full valuation allowance.
| c. | Loss before taxes on income and income taxes included in the income statements of operations: |
| Year ended August 31, | |||||||||||||
| 2017 | 2016 | 2015 | |||||||||||
| Loss before taxes on income: | |||||||||||||
| U.S. | $ | 1,115 | $ | 959 | $ | 1,226 | |||||||
| Outside U.S. | 8,965 | 8,670 | 6,007 | ||||||||||
| $ | 10,080 | $ | 9,629 | $ | 7,233 | ||||||||
| Taxes on income (tax benefit): | |||||||||||||
| Current: | |||||||||||||
| U.S. | - | (15 | ) | - | |||||||||
| Outside U.S. | 400 | 1,350 | (1 | ) | |||||||||
| $ | 400 | $ | 1,335 | $ | (1 | ) | |||||||
Taxes on income of $400 is derived from withholding tax deducted from HTIT milestones payments, which were received during the year ended August 31, 2017, according to the License Agreement. As of August 31, 2017, the Company did not expect to reach taxable income in the 5 years following the balance sheet date, and therefore recognized this amount as taxes on income.
| d. | Reconciliation of the statutory tax benefit to effective tax expense |
Following is a reconciliation of the theoretical tax expense, assuming all income is taxed at the regular tax rates applicable to companies in the United States, and the actual tax expense:
| Year ended August 31, | |||||||||||||
| 2017 | 2016 | 2015 | |||||||||||
| Loss before income taxes as reported in the consolidated statement of comprehensive loss | $ | (10,080 | ) | $ | (9,629 | ) | $ | (7,233 | ) | ||||
| Statutory tax benefit | (3,528 | ) | (3,370 | ) | (2,531 | ) | |||||||
| Increase (decrease) in income taxes resulting from: | |||||||||||||
| Change in the balance of the valuation allowance for deferred tax | 2,080 | 2,563 | 1,599 | ||||||||||
| Disallowable deductions | 327 | 167 | 422 | ||||||||||
| Influence of different tax rates and changes in tax rates applicable to the Subsidiary | 1,121 | 640 | 510 | ||||||||||
| Withholding tax, see note 10c above | 400 | 1,350 | - | ||||||||||
| Uncertain tax position | - | (15 | ) | (1 | ) | ||||||||
| Taxes on income (tax benefit) for the reported year | $ | 400 | $ | 1,335 | $ | (1 | ) | ||||||
| e. | Uncertainty in Income Taxes |
Accounting Standards Codification No.740 “Income Taxes” requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently, affect the operating results of the Company. The Company recognizes interest and penalties related to its tax contingencies as income tax expense.
The following table summarizes the activity of the Company unrecognized tax benefits:
| Year ended August 31, | |||||||||||||
| 2017 | 2016 | 2015 | |||||||||||
| Balance at Beginning of Year | $ | 11 | $ | 26 | 27 | ||||||||
| Decrease in uncertain tax positions for the current year | - | (15 | ) | (1 | ) | ||||||||
| Balance at End of Year | $ | 11 | $ | 11 | $ | 26 | |||||||
The CoThe Company does not expect unrecognized tax expenses to change significantly over the next 12 months.
The Company is subject to U.S. Federal income tax examinations for the tax years of 2013 through 2017.
The Subsidiary is subject to Israeli income tax examinations for the tax years of 2013 through 2017.
| f. | Valuation Allowance Rollforward |
| Year ended August 31, | |||||||||||||
| Balance at beginning of period | Additions | Balance at end of period | |||||||||||
| Allowance in respect of carryforward tax losses: | |||||||||||||
| Year ended August 31, 2017 | $ | 9,219 | $ | 2,080 | $ | 11,299 | |||||||
| Year ended August 31, 2016 | $ | 6,656 | 2,563 | 9,219 | |||||||||
| Year ended August 31, 2015 | $ | 5,578 | $ | 1,078 | $ | 6,656 | |||||||