Income Taxes

The Company's pre-tax income (loss) is comprised of the following components (in thousands):



	Year Ended December 31,
	2016			2015			2014
Pre-tax income (loss):
U.S.	$	3,981		$	(33,452	)	$	(34,156	)
Canada	(2,085		)	—			—
Total pre-tax income (loss)	$	1,896		$	(33,452	)	$	(34,156	)

The Company's tax provision is comprised of the following components (in thousands):



	Year Ended December 31,
	2016		2015		2014
Current tax provision:
Federal	$	2	$	—	$	—
State	—		—		—
Foreign	—		—		—
Total current provision	2		—		—
Deferred tax provision:
Federal	3		—		—
State	—		—		—
Foreign	—		—		—
Total deferred provision	3		—		—
Total tax provision	$	5	$	—	$	—

A reconciliation of the expected income tax expense computed using the federal statutory income tax rate to the Company’s effective income tax rate was as follows:



	Year Ended December 31,
	2016		2015		2014
Income tax benefit computed at federal statutory tax rate	34.0	%	34.0	%	34.0	%
Impact of foreign rate differential	7.7		—		—
State taxes, net of federal benefit	18.8		5.6		5.1
NOL write off	14.4		—		—
Stock option cancellations	49.6		—		—
Transaction costs	33.6		—		—
Contingent consideration	(15.7	)	—		—
General business credits and other credits	(25.0	)	1.8		1.3
Permanent differences	5.3		2.4		(1.3	)
Change in valuation allowance	(122.4	)	(43.8	)	(39.1	)
Total	0.3	%	—	%	—	%

The Company has incurred NOLs from inception. At December 31, 2016, the Company has U.S. federal and state NOL carryforwards of $111.4 million and $110.6 million, respectively, available to reduce future taxable income, that expire beginning in 2031 through 2035. The Company also had federal and state research and development tax credit carryforwards of $1.9 million and $1.1 million, respectively, available to reduce future tax liabilities that expire beginning in 2025 through 2036. Included in the federal and state net operating losses are deductions attributable to excess tax benefits from the exercise of stock options of $0.8 million. The tax benefits attributable to these deductions are credited directly to additional paid-in capital when realized. As of December 31, 2016, the Company also has non-capital loss carry forwards available to offset future taxable income of $7.8 million for Canadian federal tax purposes, of which $5.3 million expire in 2035 and $2.5 million expire in 2036. As of December 31, 2016, the Company also has $2.9 million of Canadian scientific research and experimental development expense carry forwards available to offset future taxable income as well as $723,000 of Canadian federal and provincial investment tax credit carry forwards available to offset future income taxes. The investment tax credits expire beginning in 2032 through 2036.

Under Section 382 of the Internal Revenue Code of 1986 and comparable provisions of state, local and foreign tax laws, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change by value in its equity ownership over a three year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes, such as research and development tax credits, to reduce its post-change income may be limited. We have determined that it is more likely than not that our net operating and tax credit amounts disclosed are subject to a material limitation under Section 382.

The Company’s deferred tax assets and liabilities consist of the following (in thousands):



	December 31,
	2016			2015
Deferred tax assets:
Net operating loss carryforwards	$	45,488		$	46,749
Research and development credit carryforwards	3,355			2,462
Accruals and other	2,079			1,385
Capitalized license and organization costs	61			66
Capitalized start-up costs	246			278
Depreciation	—			21
Total gross deferred tax asset	51,229			50,961
Deferred tax liabilities:
IPR&D	(16,335		)	—
Property and equipment	(189		)	—
Total gross deferred tax liabilities	(16,524		)	—
Valuation allowance	(51,040		)	(50,961		)
Net deferred tax liability	$	(16,335	)	$	—

As required by ASC 740, Income Taxes (“ASC 740”), management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are composed principally of NOL carryforwards and research and development credit carryforwards. Management has determined that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets, and, as a result, a valuation allowance of $51.0 million and $51.0 million has been established at December 31, 2016 and 2015, respectively. The change in the valuation allowance was $79,000 for the year ended December 31, 2016. The Company has not, as yet, conducted a study of its research and development credit carryforwards. Such a study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amount is being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credits, and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated balance sheets or consolidated statements of operations and comprehensive income (loss) if an adjustment were required.

The Company applies the accounting guidance in ASC 740 related to accounting for uncertainty in income taxes. The Company’s reserves related to taxes are based on a determination of whether, and how much of, a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit. As of December 31, 2016 and 2015, the Company had no unrecognized tax benefits. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.

The Company files income tax returns in the U.S., certain state and Canadian tax jurisdictions. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S., certain state and Canadian income tax authorities for all tax years in which a loss carryforward is available. There are currently no audits in process in any of its tax filing jurisdictions.