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INCOME TAXES | 9 Months Ended
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Dec. 31, 2022
Income Taxes |
INCOME TAXES | NOTE 12. INCOME TAXES The Company is a BVI business company. The BVI government does not, under existing legislation, impose any income or corporate tax on corporations. PDS is a U.S. corporation and is subject to U.S. federal, state and local income taxes, as applicable. iOx is subject to U.K. taxes. The (expense) benefit from income taxes consists of the following:
Schedule of income taxes benefit |  |  |  |  |  |  |  |
|  | For the Nine Months Ended December 31,
(In thousands) |  | 2022 |  | 2021
Current: |  |  |  |  |  |  |  |
Federal |  | $ | – |  |  | $ | – |
State and local |  |  | (16 | ) |  |  | – |
Foreign |  |  | (8 | ) |  |  | 21 |
Total current |  |  | (24 | ) |  |  | 21 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | – |  |  |  | – |
State and local |  |  | – |  |  |  | – |
Foreign |  |  | 2,930 |  |  |  | 444 |
Total deferred |  |  | 2,930 |  |  |  | 444 |
Benefit from income taxes |  | $ | 2,906 |  |  | $ | 465 |
The following is a reconciliation of the U.S. taxes to the effective income tax rates for the nine months ended December 31, 2022 and 2021 (U.S. Dollars in thousands):
Schedule of reconciliation income tax rates |  |  |  |  |  |  |  |
|  | Nine Months Ended December 31,
|  | 2022 |  | 2021
Income (loss) on ordinary activities before tax |  | $ | (1,230 | ) |  | $ | (1,535 | )
Statutory U.S. income tax rate |  |  | 21.0 | % |  |  | 21.0 | %
Income tax benefit at statutory income tax rate |  |  | 258 |  |  |  | 322 |
Losses recognized (unrecognized) |  |  | (282 | ) |  |  | (322 | )
Income tax expense |  | $ | (24 | ) |  | $ | – |
At December 31, 2022, the Company had $0.9 million of federal net operating losses, which carryforward indefinitely but are limited to 80% of taxable income when utilized. As of December 31, 2022 and March 31, 2022, the Company had U.S. deferred tax assets of $0.2 million and $0.3 million, respectively. The following is a reconciliation of the U.K. taxes to the effective income tax rates for the nine months ended December 31, 2022 and 2021 (U.S. Dollars in thousands):
Schedule of effective income tax rates |  |  |  |  |  |  |  |
|  | Nine Months Ended December 31,
|  | 2022 |  | 2021
Loss on ordinary activities before tax |  | $ | 4,567 |  |  | $ | 2,434 |
Statutory U.K. income tax rate |  |  | 19.0 | % |  |  | 19.0 | %
Loss at statutory income tax rate |  |  | 868 |  |  |  | 462 |
Change (increase) in deferred income tax rate |  |  | 274 |  |  |  | – |
Foreign currency effect |  |  | 1,788 |  |  |  | 444 |
Research and development credit |  |  | – |  |  |  | 21 |
Losses (unrecognized) |  |  | – |  |  |  | (462 | )
Income tax benefit |  | $ | 2,930 |  |  | $ | 465 |
Research and development credit receivables of $0.2 million and $0.2 million were included in prepaid expenses and other receivables on the condensed consolidated interim statements of financial position as of December 31, 2022 and March 31, 2022, respectively. The following is a reconciliation of financial statement income (loss) to tax basis income (loss) (in thousands):
Schedule of reconciliation of financial statement loss to tax basis loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Nine Months Ended December 31, 2022 |  | Nine Months Ended December 31, 2021
|  | United States |  | BVI |  | United Kingdom |  | Total |  | United States |  | BVI |  | Foreign |  | Total
Pre-tax loss |  | $ | (1,230 | ) |  | $ | (7,320 | ) |  | $ | (4,567 | ) |  | $ | (13,117 | ) |  | $ | (1,535 | ) |  | $ | (6,802 | ) |  | $ | (2,434 | ) |  | $ | (10,771 | )
Loss for which no benefit was taken |  |  | 1,622 |  |  |  | – |  |  |  | – |  |  |  | 1,622 |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
Losses not subject to tax |  |  | – |  |  |  | 7,320 |  |  |  | – |  |  |  | 7,320 |  |  |  | – |  |  |  | 6,802 |  |  |  | – |  |  |  | 6,802 |
Utilization of losses not previously benefitted |  |  | (314 | ) |  |  | – |  |  |  | – |  |  |  | (314 | ) |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
Taxable income (loss) |  | $ | 78 |  |  | $ | – |  |  | $ | (4,567 | ) |  | $ | (4,489 | ) |  | $ | (1,535 | ) |  | $ | – |  |  | $ | (2,434 | ) |  | $ | (3,969 | )
As of December 31, 2022 and March 31, 2022, the Company’s deferred tax assets and liabilities in the U.K. consisted of the effects of temporary differences attributable to the following (in thousands):
Schedule of deferred tax assets and liabilities |  |  |  |  |  |  |  |
|  | As of December 31, |  | As of March 31,
|  | 2022 |  | 2022
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss |  | $ | (4,394 | ) |  | $ | (3,253 | )
Deferred tax asset (unrecognized) |  |  | 1,500 |  |  |  | 1,500 |
Deferred tax asset |  |  | (2,894 | ) |  |  | (1,753 | )
Deferred tax liabilities: |  |  |  |  |  |  |  |
In-process research and development |  |  | 28,409 |  |  |  | 30,198 |
Deferred tax liability |  |  | 28,409 |  |  |  | 30,198 |
Net deferred tax liability |  | $ | 25,515 |  |  | $ | 28,445 |
iOx generated research and development cash credits of approximately $0.02 million that have been recorded for the nine months ended December 31, 2021. There were no research and development cash credits recorded for the nine months ended December 31, 2022. As of December 31, 2022 and March 31, 2022, iOx had a net deferred tax liability of approximately $25.5 million and approximately $28.4 million, respectively. On January 8, 2019, the Company originally recognized a $19.8 million deferred tax liability for the difference between the book and income tax basis of IPR&D acquired as part of the SalvaRx Acquisition. As the iOx IPR&D is in the U.K., the deferred tax was recorded at 17%, the prevailing tax rate applicable in the U.K. at the time. In fiscal 2022, the Company recorded $7.0 million increase in deferred income taxes to reflect a future change in the U.K. income tax rate and recognized $0.7 million of current year losses and $0.8 million of prior year losses. The Company also recognized a $1.1 million decrease in deferred tax liability in fiscal 2022 to reflect the effect of the change in exchange rates on the liability settleable in British pound sterling. For the nine months ended December 31, 2022, the Company recognized the reduction in deferred tax liability of $1.8 million to reflect the effect of the change in exchange rates on the liability in the period and recognized $0.8 million of current period losses, as well as the tax rate change effect of $0.3 million on the current period losses. There is no expiration date for accumulated tax losses in the U.K. entities.

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