Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

13. Income Taxes

Loss before the provision for income taxes consisted of the following:

	Year Ended December 31,
	2022			2021
	(in thousands)
Canada	$	(17,550	)	$	(110,433	)
Foreign	$	3,650		$	1,847
Loss before provision for income taxes	$	(13,900	)	$	(108,586	)

The components of the provision for income taxes are as follows:

	Year Ended December 31,
	2022		2021
	(in thousands)
Current income tax provision - foreign	$	11,527	$	530
Deferred income tax benefit - foreign		3,620		(2,208	)
Total provision for income taxes	$	15,147	$	(1,678	)

A reconciliation between tax expense and the product of accounting income multiplied by the statutory income tax rate is as follows:

	Year Ended December 31,
	2022			2021
	(in thousands)
Loss before income taxes	$	(13,900	)	$	(108,586	)
Income tax at statutory rate		26.5	%		26.5	%
Computed income tax recovery		(3,684	)		(28,775	)
Effect on income tax resulting from:
Federal investment tax credit		(4,899	)		(4,093	)
Accounting charges not deductible for tax purposes		679			1,078
Capital gain income		(13,956	)		—
Equity compensation		3,492			2,220
State taxes		(777	)		(37	)
Other		(142	)		644
Change in valuation allowance		34,434			27,285
Tax (benefit) expense	$	15,147		$	(1,678	)

The Company's applicable statutory tax rate is the Canadian combined rate applicable in the jurisdictions in which the Company operates.

As of December 31, 2022, the Company had tax losses of approximately $158.5 million, which are available to offset future taxable income in Canada. The Company has not recognized the tax benefit of these losses. These losses expire as follows:

	(in thousands)
2042	$	45,279
2041		93,834
2040		—
2039		11,394
2038		7,111
2037		883
Total	$	158,501

As of December 31, 2022, the Company had Scientific Research and Experimental Development (“SR&ED”) expenditures of approximately $54.6 million for Canadian federal and Québec purposes, which have not been deducted. These expenditures are available to reduce future taxable income and have an unlimited carryforward period. SR&ED expenditures are subject to verification by the tax authorities and, accordingly, the amounts may vary.

As of December 31, 2022, the Company had non-refundable Canadian federal investment tax credits of approximately $9.0 million, which may be utilized to reduce Canadian federal income taxes payable. The Company has not

recognized the tax benefits related to the non-refundable investment tax credits. The investment tax credits expire as follows:

	(in thousands)
2042	$	2,392
2041		2,253
2040		1,702
2039		1,362
2038		776
2037		455
2036		24
Total	$	8,964

The Company’s deferred tax assets as of December 31, 2022 and 2021 consisted of the following:

	2022			2021
	(in thousands)
Net operating loss carryforwards	$	42,003		$	30,093
Net research and development expenditures		14,468			10,656
Share issuance costs		2,369			3,538
Net federal investment tax credits		6,589			4,805
U.S. research and development tax credits		—			1,775
Tax basis of property and equipment in excess of carrying values		(376	)		—
Operating lease right-of-use assets		(1,429	)		(1,995	)
Operating lease liability		1,445			1,950
Accrued expense and other liabilities		785			760
Deferred revenue		14,783			13,656
Share-based compensation		2,492			988
R&D costs capitalized		13,911			—
Total deferred tax assets		97,040			66,226
Valuation allowance		(97,040	)		(62,606	)
Net deferred tax assets	$	—		$	3,620

Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and has determined that it is more likely than not that the Company will not recognize the benefit of its net deferred tax assets, and as a result, a valuation allowance of $97.0 million and $62.6 million has been established at December 31, 2022 and December 31, 2021, respectively.

The Company has incurred net operating losses in Canada since inception and the Company's U.S. subsidiary operated profitably in the United States since its inception. As of December 31, 2021, the Company had U.S. federal and state research and development tax credit carry forwards of $1.8 million which were utilized in the year ended December 31, 2022.

The Company files income tax returns in Canada and in the United States. In the normal course of business, the Company could be subject to examination by federal and provincial or state jurisdictions, where applicable. There are currently no pending tax examinations. The Company may be subject to tax examination for fiscal years 2017 to 2022 due to unexpired statute of limitation periods.

The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the provinces and states in which the Company operates or does business in. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

The Company records uncertain tax positions as liabilities in accordance with ASC 740 and adjusts these liabilities when the Company’s judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of December 31, 2022 and 2021, no uncertain tax positions have been recorded in the consolidated financial statements.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations and comprehensive loss. As of December 31, 2022 and 2021, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet.