Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.19.1
Income Taxes
12 Months Ended
Dec. 31, 2018
Income Taxes  
Income Taxes

Note 11. Income Taxes

There is no provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets. The reported amount of income tax expense for the years differs from the amount that would result from applying domestic federal statutory tax rates to pretax losses primarily because of changes in valuation allowance.

The Parent is a standalone S corporation and its tax obligations were passed through to its shareholders and were not a liability of the S corporation. As a result, BioXcel does not require a tax provision for federal or state purposes.

Pursuant to incorporation of the Company as a C corporation on March 29, 2017, BioXcel became the sole owner of the Company, and contributed certain assets to the Company in a tax free transaction. From the date of incorporation, the Company is a standalone C corporation subject to corporate income tax and the deferred taxes of the Company have been calculated accordingly.

The significant components of the Company’s net deferred tax assets at December 31, 2018 and 2017 are shown below. In determining the realizability of the Company’s net deferred tax asset, the Company considered numerous factors, including historical profitability, estimated future taxable income, and the industry in which it operates. Based on this information the Company has provided a valuation allowance for the full amount of its net deferred tax asset because the Company has determined that it is more likely than not that it will not be realized.

 

 

 

 

 

 

 

 

    

2018

 

2017

Federal net operating losses

 

$

3,840

 

$

627

State net operating losses

 

 

1,300

 

 

212

Stock based compensation

 

 

552

 

 

268

Federal and state tax credits

 

 

366

 

 

42

Accrued expense

 

 

203

 

 

 9

Total gross deferred tax assets

 

 

6,261

 

 

1,158

Less: valuation allowance

 

 

(6,261)

 

 

(1,158)

Net deferred tax assets

 

$

 —

 

$

 —

 

A reconciliation between the Company’s effective tax rate and the federal statutory rate for the year ended December 31, 2018 and the period from inception to December 31, 2017 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Inception to

 

 

    

2018

    

 

2017

 

Federal Statutory Rate

 

21.0

%  

 

34.0

%

Change in Federal Rate

 

 —

 

 

(11.4)

 

Stock based compensation

 

(2.2)

 

 

(4.2)

 

Federal and state credits

 

1.6

 

 

0.9

 

State Taxes

 

6.3

 

 

 —

 

Change in valuation allowance

 

(26.5)

 

 

(19.3)

 

Other

 

(0.2)

 

 

 —

 

Effective Tax Rate

 

0.0

%  

 

 —

%

 

At December 31, 2018, the Company had approximately $18.2 million of gross federal and state net operating loss carry-forwards. If not utilized, the federal and state net operating loss carry-forwards will begin to expire in 2037. The federal net operating loss incurred after December 31, 2017 will be carried forward indefinitely.  The utilization of such net operating loss carry-forwards and realization of tax benefits in future years depends predominantly upon having taxable income. The Company also has approximately $366 of federal research and development credits which will begin to expire in 2037 if not utilized.

Utilization of the NOL and research tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that has occurred or that could occur in the future, as required by Section 382 of the Code, as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and research tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an "ownership change" as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. To date, the Company’s NOL’s have not been subject to Section 382 limitation.

Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns. The Company has analyzed its tax positions and has concluded that as of December 31, 2018 there were no uncertain positions. Interest and penalties, if any, as they relate to income taxes assessed, are included in the income tax provision. There was no income tax related interest and penalties included in the income tax provision.

On December 22, 2017, H.R. 1 (also, known as the Tax Cuts and Jobs Act (the “Act”)) was signed into law.  Among its numerous changes to the Internal Revenue Code, the Act reduces U.S. federal corporate tax rate to 21%.  As a result, the most significant impact on its financial statements was the reduction of approximately $470 for the deferred tax assets related to net operating losses and other assets.  Such reduction was offset by changes to the Company’s valuation allowance as of December 31,2017.  The Company is also in the process of considering the impact under the Act of the disallowance of certain incentive based compensation tax deductibility under Internal Revenue Code Section 162(m).  If an adjustment to the deferred tax asset is required, the impact will be offset by a corresponding adjustment to the valuation allowance.  There was no adjustment to the 2018 financial statements related to these items.