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, 2018

The domestic and foreign components of pre-tax loss for the years ended December 31, 2018 and 2017 were as follows:



	Years Ended December 31,
	2018			2017
Domestic	$	(24,787	)	$	(26,434	)
Foreign	(2,205		)	(2,688		)
Loss before income taxes	$	(26,992	)	$	(29,122	)

The Company had no current or deferred federal and state income tax expense or benefit for the years ended December 31, 2018 and 2017 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 Germany and Singapore for which taxes included in other expense, net for the years ended December 31, 2018 and 2017 were immaterial and accordingly, such amounts were excluded from the following tables.

Income tax expense (benefit) for the years ended December 31, 2018 and 2017 differed from the amounts computed by applying the statutory federal income tax rate of 21% and 34%, respectively, to pretax income (loss) as a result of the following:



	Years Ended December 31,
	2018		2017
Federal tax at statutory rate	21.0	%	34.0	%
State tax, net of federal tax effect	—		—
R&D credit	1.3		1.2
Change in valuation allowance	(21.1	)	18.9
Deferred tax impacts of the Tax Act	—		(59.1	)
Unrealized (gain) loss on warrant	0.8		3.1
Foreign	1.0		(0.4	)
Other	(3.0	)	2.3
Total tax expense	—	%	—	%

The tax effects of temporary differences and related deferred tax assets and liabilities as of December 31, 2018 and 2017 were as follows:



	December 31,
	2018			2017
Deferred tax assets:
Depreciation and other	$	248		$	242
Net operating loss carryforwards	36,970			31,590
Unused R& D tax credits	1,769			1,359
Accruals & reserves	480			524
Deferred Revenue	221			253
Stock Compensation	1,888			2,277
Other	55			42
Deferred tax liabilities:
Prepaid expenses	(49		)	(314		)
Less: Valuation allowance	(41,582		)	(35,973		)
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 increased by $5,608 during the year ended December 31, 2018 and decreased by $4,153 during the year ended December 31, 2017.

In December 2017, the Tax Cuts and Jobs Act or 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-measured, 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 for the tax year ended December 31, 2017. Furthermore, for tax years beginning after December 31, 2018, the Global Intangible Low-taxed Income (GILTI) takes effect. Due to the aggregated negative E&P of the foreign subsidiaries there is no GILTI inclusion for 2018.

As of December 31, 2018 the Company had federal net operating loss carryforwards of $142,076. The federal net operating loss carryforwards of $120,792 generated before January 1, 2018 will begin to expire in 2027, and $21,284 will carryforward indefinitely but are subject to the 80% taxable income limitation. The Company also had federal research and development tax credit carryforwards of $1,776 that will expire beginning in 2027, if not utilized.

As of December 31, 2018, the Company had state net operating loss carryforwards of $87,803, which will begin to expire in 2028. The Company also had state research and development tax credit carryforwards of $738, which have no expiration.

As of December 31, 2018, the Company had foreign net operating loss carryforwards of $7,537. 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 was 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, 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
Increase of unrecognized tax benefits taken in prior years	51
Increase of unrecognized tax benefits related to current year	90
Balance at December 31, 2018	$	628

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, 2018. 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, Germany, Singapore and various states jurisdictions. There are no other ongoing examinations by taxing authorities at this time. The Company’s tax years 2007 through 2018 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.