|
6. |
INCOME TAXES |
The components of net loss are as follows (amounts in thousands):
|
|
|
Year Ended December 31, 2017 |
|
|
Nine Months Ended December 31, 2016 |
|
||
|
U.S. |
|
$ |
24,980 |
|
|
$ |
11,082 |
|
|
Non-U.S. |
|
|
3,044 |
|
|
|
958 |
|
|
|
|
$ |
28,024 |
|
|
$ |
12,040 |
|
A reconciliation of the income tax provision computed at statutory rates to the reported income tax provision is as follows (amounts in thousands):
|
|
|
Year Ended December 31, 2017 |
|
|
|
Nine Months Ended December 31, 2016 |
|
||
|
Statutory tax rate |
|
|
34.00 |
% |
|
|
|
34.00 |
% |
|
Net loss before income taxes |
|
$ |
28,024 |
|
|
|
$ |
12,040 |
|
|
Expected income tax recovery |
|
$ |
(9,528 |
) |
|
|
$ |
(4,094 |
) |
|
Increase (decrease) in income tax recovery resulting from: |
|
|
|
|
|
|
|
|
|
|
Derivative liability |
|
|
1,171 |
|
|
|
|
843 |
|
|
Share based payments |
|
|
453 |
|
|
|
|
467 |
|
|
Other permanent difference |
|
|
(446 |
) |
|
|
|
(420 |
) |
|
Effect of change in statutory rate |
|
|
5,938 |
|
|
|
|
— |
|
|
State deferred change |
|
|
(2,050 |
) |
|
|
|
— |
|
|
Foreign income taxed at foreign rate |
|
|
118 |
|
|
|
|
77 |
|
|
Increase in valuation allowance |
|
|
4,344 |
|
|
|
|
3,127 |
|
|
Income tax expense |
|
$ |
— |
|
|
|
$ |
— |
|
The significant components of the Company’s deferred income tax assets and liabilities after applying enacted corporate tax rates are as follows (amounts in thousands):
|
|
|
December 31, 2017 |
|
|
December 31, 2016 |
|
||
|
Deferred income tax assets (liabilities) |
|
|
|
|
|
|
|
|
|
Operating losses carried forward |
|
$ |
11,382 |
|
|
$ |
7,626 |
|
|
Tax credits |
|
|
1,243 |
|
|
|
702 |
|
|
Stock compensation |
|
|
1,414 |
|
|
|
1,726 |
|
|
Other |
|
|
530 |
|
|
|
170 |
|
|
Valuation allowance |
|
|
(14,569 |
) |
|
|
(10,224 |
) |
|
Net deferred income tax asset |
|
$ |
— |
|
|
$ |
— |
|
As of December 31, 2017, the Company has accumulated non-capital losses totaling $6.0 million in Canada and net operating losses of $39.0 million in the U.S., which may be available to carry forward and offset future years’ taxable income. The losses expire in various amounts starting in 2033.
Under the provisions of the Internal Revenue Code, the net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent, as defined under Section 382 of the Internal Revenue Code, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.
On December 22, 2017 the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“The Act”). The Act makes broad changes to the U.S. tax code, including, but not limited to, (i) reducing the U.S federal corporate tax rate from 35% to 21%; (ii) eliminating the corporate alternative minimum tax; (iii) creating a new limitation on deductible interest expense; (iv) creating the base erosion and anti-abuse tax, a new minimum tax; (v) limitation on the deductibility of certain executive compensation; (vi) enhancing the option to claim accelerated depreciation deductions on qualified property, and (vii) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
The Act reduces the corporate tax rate to 21%, effective January 1, 2018. The accounting for this portion of The Act has caused a reduction to the Company’s net deferred tax assets before valuation allowance of $5.9 million for the year ended December 31,2017. However, the Company maintains a full valuation allowance against its deferred tax assets. As a result, the $5.9 million reduction to the Company’s deferred tax assets is offset by a corresponding $5.9 million reduction in the Company’s valuation allowance, resulting in no net impact to the Company’s tax provision.
The Company has not completed its determination of the accounting implications of The Act on its tax accruals. However, the Company has reasonably estimated the effects of The Act as described above as of December 31, 2017, primarily comprised of the remeasurement of federal net deferred tax assets resulting from the permanent reduction in the U.S. statutory corporate tax rate to 21% from 34%. As the Company completes its analysis of The Act, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may make adjustments to the provisional amounts recorded as of December 31, 2017. However, those adjustments are not anticipated to have a material impact on the Company’s tax provision.
Uncertain Tax Positions
The Company has adopted certain provisions of ASC 740, “Income Taxes”, which prescribes a recognition threshold and measurement attribute for the recognition and measurement of tax positions taken or expected to be taken in income tax returns. The provisions also provide guidance on the de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions.
The Company files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. The Company’s tax returns are subject to tax examinations by U.S. federal and state tax authorities, or examinations by foreign tax authorities until the expiration of the respective statutes of limitation. The Company currently has no tax years under examination.
As of December 31, 2017, the Company does not have an accrual relating to uncertain tax positions. It is not anticipated that unrecognized tax benefits would significantly increase or decrease within 12 months of the reporting date.