Checkpoint Therapeutics, 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

Note 8 - Income Taxes

The Company has accumulated net losses since inception and has not recorded an income tax provision or benefit during the years ended December 31, 2017 and 2016.

A reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate is as follows:

	For the years ended December 31,
	2017			2016

Statutory federal income tax rate		35	%		35	%
State taxes, net of federal tax benefit		11	%		1	%
Credits		2	%		3	%
Change in federal tax rate		(27)	%		-
Change in state tax rate		8	%		(2)	%
Provision to return		5	%		5	%
Stock based compensation shortfall		(4)	%		(4)	%
Other		-			(2)	%
Change in valuation allowance		(30)	%		(36)	%
Income taxes provision (benefit)		-			-

The components of the net deferred tax asset as of December 31, 2017 and 2016 are the following (in thousands):

	As of December 31,
	2017		2016

Deferred tax assets:
Net operating loss carryovers	$	10,662	$	5,148
Stock compensation and other		1,839		1,624
Change in fair value of warrant liabilities		149		157
Amortization of license		5,410		4,656
Accruals and reserves		11		25
Tax credits		905		733
Start Up Costs		46		54
Total deferred tax assets		19,022		12,397
Less valuation allowance		(19,022)		(12,397)
Deferred tax asset, net of valuation allowance	$	-	$	-

On December 22, 2017, “H.R.1”, formerly known as the “Tax Cuts and Jobs Act”, was signed into law. Among other items, H.R.1 reduces the federal corporate tax rate to 21% from the existing maximum rate of 35%, effective January 1, 2018. As a result, the Company has recorded a decrease related to deferred tax assets and valuation allowance of $6.2 million, with a corresponding net adjustment to deferred income tax expense of zero for the year ended December 31, 2017.

The Company has determined, based upon available evidence, that it is more likely than not that the net deferred tax asset will not be realized and, accordingly, has provided a full valuation allowance against its net deferred tax asset. A valuation allowance of approximately $19.0 million and $12.4 million was recorded for the years ended December 31, 2017 and 2016, respectively.

As of December 31, 2017, the Company had federal and state net operating loss carryforwards of approximately $31.3 million and $60.5 million, respectively. The federal and state net operating loss carryforwards will begin to expire, if not utilized, by 2035 and 2035, respectively. Utilization of the net operating loss carryforward may be subject to an annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended and similar state provisions.

There are no significant matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return, in accordance with ASC 740 “Income Taxes” (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements, that have been recorded on the Company’s financial statements for the year ended December 31, 2017. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months.

Additionally, ASC 740 provides guidance on the recognition of interest and penalties related to income taxes. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the period ended December 31, 2017.

The federal and state tax returns for the periods ended December 31, 2015, 2016 and 2017 are currently open for examination under the applicable federal and state income tax statues of limitations.