Ekso Bionics Holdings, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2017

15. Income Taxes

The domestic and foreign components of pre-tax loss for the years ended December 31, 2017, 2016, and 2015 were as follows:

	Years Ended December 31,
	2017		2016		2015
Domestic	$	(26,434)	$	(21,458)	$	(19,918)
Foreign		(2,688)		(2,012)		328
Loss before income taxes	$	(29,122)	$	(23,470)	$	(19,590)

The Company had no current or deferred federal and state income tax expense or benefit for the years ended December 31, 2017, 2016, and 2015 because the Company generated net operating losses, and currently management does not believe it is more likely than not that the net operating losses will be realized. The Company’s non-U.S. tax obligation is primarily for business activities conducted through the United Kingdom for which taxes included in other expense, net for the years ended December 31, 2017, 2016, and 2015 were immaterial and accordingly, such amounts were excluded from the following tables.

Income tax expense (benefit) for the years ended December 31, 2017, 2016, and 2015 differed from the amounts computed by applying the statutory federal income tax rate of 34% to pretax income (loss) as a result of the following:

	Years Ended December 31,
	2017			2016			2015
Federal tax at statutory rate		34.0	%		34.0	%		34.0	%
State tax, net of federal tax effect		-			-			-
R&;D credit		1.2			0.9			0.5
Change in valuation allowance		18.9			(40.8)			(38.4)
Deferred tax impacts of the Tax Act		(59.1)			-			-
Unrealized (gain) loss on warrant		3.1			6.2			4.3
Foreign		(0.4)			(0.4)			0.5
Other		2.3			0.3			0.1
Total tax expense		-	%		-	%		-	%

The tax effects of temporary differences and related deferred tax assets and liabilities as of December 31, 2017 and 2016 were as follows:

	December 31,
	2017		2016

Deferred tax assets:
Depreciation and other	$	242	$	61
Net operating loss carryforwards		31,590		35,647
Unused R&; D tax credits		1,359		872
Accruals &; reserves		524		951
Deferred Revenue		253		246
Stock Compensation		2,277		2,430
Other		42		86
Deferred tax liabilities:
Depreciation and other		-		-
Prepaid expenses		(314)		(168)
Less: Valuation allowance		(35,973)		(40,125)
Net deferred tax asset (liability)	$	-	$	-

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of the Company’s net deferred tax assets. The Company primarily considered such factors as the Company’s history of operating losses; the nature of the Company’s deferred tax assets and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does not believe that it is more likely than not that the deferred tax assets will be realized; accordingly, a full valuation allowance was established and no deferred tax assets were shown in the accompanying balance sheets. The valuation allowance decreased by $4,153 during the year ended December 31, 2017 and increased by $10,827 during the year ended December 31, 2016.

In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”), was signed into law. Among other provisions, the Tax Act reduces the federal statutory corporate tax rate from 35% to 21% for the Company’s tax years beginning in 2018. As a result, net deferred tax assets were re-measure, which resulted in a reduction of our deferred tax assets by $17,220, with a corresponding decrease to the valuation allowance of the same amount. We are in the process of assessing the impact of the international tax provisions provided for in the Tax Act that would apply for calendar years 2018 onwards. We are not, however, subject to the one-time mandatory transition tax.

As of December 31, 2017 the Company had federal net operating loss carryforwards of $120,366. The Company also had federal research and development tax credit carryforwards of $1,294. The net operating loss and tax credit carryforwards will expire at various dates beginning in 2027, if not utilized.

As of December 31, 2017, the Company had state net operating loss carryforwards of $84,466, which will begin to expire in 2017. The Company also had state research and development tax credit carryforwards of $655, which have no expiration.

As of December 31, 2017, the Company had foreign net operating loss carryforwards of $4,701. The foreign net operating loss carryforwards do not expire.

As of December 31, 2017, $1,749 of federal and $689 of state net operating loss is attributable to stock-based compensation deductions in excess of book expense. Upon adoption of ASU 2016-09-Compensation-Stock Compensation, the benefit of the tax deduction related to these options did not affect retained earnings due to the Company applying a full valuation allowance against the deferred tax assets, as is the Company’s current policy

Utilization of the Company’s net operating losses and credit carryforwards may be subject to annual limitations in the event of a Section 382 ownership change. Such future limitations could result in the expiration of net operating losses and credit carryforwards before utilization as a result of such an ownership change.

A reconciliation of the beginning and ending amount of unrecognized tax benefits were as follows:

Balance at December 31, 2013	$	93
Increase of unrecognized tax benefits taken in prior years		4
Increase of unrecognized tax benefits related to current year		46
Balance at December 31, 2014		143
Decrease of unrecognized tax benefits taken in prior years		(19)
Increase of unrecognized tax benefits related to current year		75
Balance at December 31, 2015		199
Increase of unrecognized tax benefits taken in prior years		4
Increase of unrecognized tax benefits related to current year		132
Balance at December 31, 2016		335
Increase of unrecognized tax benefits taken in prior years		33
Increase of unrecognized tax benefits related to current year		119
Balance at December 31, 2017	$	487

If the Company eventually is able to recognize these uncertain tax positions, the unrecognized tax benefits would not reduce the effective tax rate if the Company is applying a full valuation allowance against the deferred tax assets, as is the Company’s current policy.

The Company had not incurred any material tax interest or penalties as of December 31, 2017. The Company does not anticipate any significant change within 12 months of this reporting date of its uncertain tax positions. The Company is subject to taxation in the United States, the United Kingdom, Germany, and various states jurisdictions. There are no other ongoing examinations by taxing authorities at this time. The Company’s tax years 2007 through 2017 will remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss credits.