DiaMedica Therapeutics, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Note 16 - Income Taxes

Note 16 - Income Taxes

12 Months Ended

Dec. 31, 2019

16.	Income Taxes

The Company has incurred net operating losses since inception. The Company has

not

reflected the benefit of net operating loss carryforwards in the accompanying consolidated financial statements and has established a full valuation allowance against its deferred tax assets.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as operating losses and tax credit carryforwards.

The significant components of our deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2019			2018
Deferred tax assets (liabilities):
Non-capital losses carried forward	$	11,211		$	9,280
Research and development expenditures		817			887
Share issue costs		395			529
Patents and other		294			293
Accruals		13			(97	)
Property and equipment		3			(6	)
Total deferred tax asset, net		12,733			10,886
Valuation allowance		(12,733	)		(10,886	)
Net deferred tax asset	$	—		$	—

Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. Because of our history of operating losses, management believes that the deferred tax assets arising from the above-mentioned future tax benefits are currently

not

likely to be realized and, accordingly, we have provided a full valuation allowance.

The reconciliation of the Canadian statutory income tax rate applied to the net loss for the year to the income tax expense is as follows:

	December 31,
	2019			2018
Statutory income tax rate		27.0	%		27.0	%
Income tax recovery based on statutory rate	$	(2,841	)	$	(1,119	)
Share-based compensation		315			243
Gain on revaluation of warrant liability		—			(450	)
Australian research and development incentive		137			103
Other		(9	)		172
Change in valuation allowance		2,429			1,131
Income tax expense	$	31		$	80

Net operating losses and tax credit carryforwards as of

December 31, 2019,

are as follows:

	Amount (In thousands)		Expiration Years
Non-capital income tax losses, net	$	38,425	Beginning 2026
Research and development expense carry forwards		3,026	Indefinitely
Tax credits		484	Beginning 2020

The Company is subject to taxation in the Canada, the United States and Australia. Tax returns, since the inception of DiaMedica Therapeutics Inc., are subject to examinations by Canadian tax authorities and

may

change upon examination. Tax returns of DiaMedica USA, Inc., since its inception in

2012

and thereafter, are subject to examination by the U.S. federal and state tax authorities. Tax returns of DiaMedica Therapeutics Australia Pty Ltd., since its inception in

2016

and thereafter, are subject to examination by the Australian tax authorities.