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Income Tax | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Tax | 10. INCOME TAX [a] We are a Delaware incorporated company subject to blended U.S. Federal and state statutory rates for December 31, 2022, 2021 and 2020 of 21%. For the purposes of estimating the tax rate in effect at the time that deferred tax assets and liabilities are expected to reverse, management uses the furthest out available future tax rate in the applicable jurisdictions. U.S. and foreign components of income (loss) before income taxes were as follows (in thousands):
(In thousands) |  | 2022 |  |  | 2021 |  |  | 2020 |
U.S. |  | $ | (41,660 | ) |  | $ | (31,411 | ) |  | $ | (12,304 | )
Foreign |  |  | (690 | ) |  |  | (1,741 | ) |  |  | (2,426 | )
Income (loss) before income taxes |  | $ | (42,350 | ) |  | $ | (33,152 | ) |  | $ | (14,730 | )
Income tax expense/(recovery) consisted of the following (in thousands):
(In thousands) |  | 2022 |  |  | 2021 |  |  | 2020 |
Income tax recovery at statutory rates (at a rate of 21% for all years presented) |  | $ | (8,894 | ) |  | $ | (6,962 | ) |  | $ | (3,094 | ) |
Expenses not deducted for tax purposes |  |  | 299 |  |  |  | 224 |  |  |  | 118 |
Effect of tax rate changes on deferred tax assets and liabilities |  |  | (18 | ) |  |  | 17 |  |  |  | 34 |
Rate differential on foreign earnings |  |  | (26 | ) |  |  | (77 | ) |  |  | (103 | )
Research and development tax credits |  |  | (1,154 | ) |  |  | (134 | ) |  |  | (23 | )
Change in valuation allowance |  |  | 10,464 |  |  |  | 7,544 |  |  |  | 3,662 |
Reassessment of previously recognized net operating losses |  |  | 9 |  |  |  | (620 | ) |  |  | — |
Adjustment to prior year research and development tax credits |  |  | (731 | ) |  |  | — |  |  |  | — |
Other |  |  | 51 |  |  |  | 8 |  |  |  | (594 | )
Income tax expense/(recovery) |  | $ | — |  |  | $ | — |  |  | $ | — |
[b] The tax effects of the temporary differences and carryforwards that give rise to deferred tax assets and liabilities are as follows (in thousands):
|  | 2022 |  |  | 2021 |
Deferred tax assets |  |  |  |  |  |  |  |
Tax basis in excess of book value of assets |  | $ | 899 |  |  | $ | 897 |
Non-capital loss carryforwards |  |  | 43,380 |  |  |  | 39,356 |
Research and development deductions and credits |  |  | 8,942 |  |  |  | 7,058 |
Stock options |  |  | 1,042 |  |  |  | 702 |
§59(e) Capitalized R&D expenses |  |  | 11,342 |  |  |  | 7,159 |
Other |  |  | 334 |  |  |  | 316 |
Total deferred tax assets |  |  | 65,939 |  |  |  | 55,488 |
Valuation allowance |  |  | (65,546 | ) |  |  | (55,082 | )
Net deferred assets |  |  | 393 |  |  |  | 406 |
Deferred tax liabilities |  |  |  |  |  |  |  |
Other |  |  | (393 | ) |  |  | (406 | )
Total deferred tax liabilities |  |  | (393 | ) |  |  | (406 | )
Net deferred tax assets |  |  | — |  |  |  | — |
A valuation allowance is recorded when it is more likely than not that all or some portion of the deferred tax assets, or DTAs, will not be realized. Management assesses the need for a valuation allowance against the deferred tax assets when considering both positive and negative evidence related to whether it is more likely than not that the deferred tax assets will be realized. In evaluating the ability to recover the deferred tax assets within the jurisdiction from which they arise, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, projected future growth, tax-planning strategies, and results of recent operations. Due to the uncertainty surrounding the realization of deductible tax attributes in future tax returns, we have recorded a valuation allowance for deferred tax assets of $64.9 million to reduce the DTAs to zero as of December 31, 2022. The valuation allowance increased by approximately $10.4 million during the year ended December 31, 2022. The amount of the DTA considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth. We have total net operating loss carryforwards for federal tax purposes of approximately $66.1 million ($47.4 million—2021) as of December 31, 2022, most of which begin to expire in 2022. Approximately $55.9 million of the federal net operating losses will carryforward indefinitely. Federal net operating losses generated after January 1, 2018 were originally available to offset 80% of taxable income for any given future tax year and will be carried forward indefinitely. However, with the passage of the 2020 CARES Act, the 80% limitation is temporarily removed for tax years 2018 to 2020. We have research and development tax credit carryforwards of approximately $2.3 million ($0.4 million—2021) as of December 31, 2022, which expire in 2042. The operating loss carryforwards and research and development tax credits may be limited due to a change in control in our ownership as defined by the Internal Revenue Code Section 382. Any future changes in the our ownership may limit the use of such carryforward benefits. Our effective income tax rate for the periods presented differ from the statutory rate of 21% primarily due to current year net losses and the full valuation allowance on the U.S. deferred tax assets. We file income tax returns in the United States, Canada, and the United Kingdom, or U.K. At December 31, 2022, we have Canadian non-capital loss carryforwards of $110.0 million ($109.5 million—2021) and research tax credits of $2.7 million ($2.7 million—2021), both of which will expire in 2042. In addition, we have unclaimed tax deductions of approximately $15.8 million related to scientific research and experimental development expenditures available to carry forward indefinitely to reduce Canadian taxable income of future years. The U.K. net operating loss carryforwards of $3.4 million (2021—$3.5 million) will carryforward indefinitely. As of December 31, 2022 and 2021, there are no tax penalties or accrued interest recorded in the financial statements. [c] A reconciliation of the unrecognized tax benefits of uncertain tax positions for the year ended December 31, 2022 is as follows (in thousands):
|  | Year ended |
|  | December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Balance at January 1 |  | $ | 761 |  |  | $ | 767 |  |  | $ | 724 |
Gross increases (decreases) related to prior period tax positions |  |  | — |  |  |  | (6 | ) |  |  | 43 |
Gross increases (decreases) related to current period tax positions |  |  | — |  |  |  | — |  |  |  | — |
Decreases relating to settlements with tax authorities |  |  | — |  |  |  | — |  |  |  | — |
Reductions due to lapses of statute of limitations |  |  | — |  |  |  | — |  |  |  | — |
Balance at December 31 |  | $ | 761 |  |  | $ | 761 |  |  | $ | 767 |
As of December 31, 2022, unrecognized benefits of approximately $0.8 million, if recognized, would affect our effective tax rate, and would reduce our deferred tax assets. Our accounting policy is to treat interest and penalties relating to unrecognized tax benefits as a component of income taxes. As of December 31, 2022 and December 31, 2021 we had no accrued interest and penalties related to income taxes. We are subject to taxes in Canada, the U.K. and the United States until the applicable statute of limitations expires. Tax audits by their very nature are often complex and can require several years to complete.
Tax |  | Years open to
Jurisdiction |  | examination
Canada |  | 2018 to 2022
United Kingdom |  | 2016 to 2022
US |  | 2019 to 2022

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