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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The provision (benefit) for income taxes is based on loss from operations before provision for income taxes and noncontrolling interests as follows ($ in thousands):
| Years Ended December 31,
Pre-tax book income | 2022 |  | 2021 |  |
United States | $ | (56,175) |  |  | $ | (28,974) |  |  |
Australia | (529) |  |  | — |  |  |
Total | $ | (56,704) |  |  | $ | (28,974) |  |  |
The provision (benefit) from income taxes was as follows ($ in thousands):
|  | Years Ended December 31, |  |
|  | 2022 |  | 2021 |  |
Current |  |  |  |  |  |
U.S. Federal |  | $ | — |  |  | $ | — |  |  |
State and local |  | — |  |  | — |  |  |
|  | $ | — |  |  | $ | — |  |  |
Deferred |  |  |  |  |  |
U.S. Federal |  | $ | — |  |  | $ | — |  |  |
State and local |  | (2,479) |  |  | (1,508) |  |  |
|  | $ | (2,479) |  |  | $ | (1,508) |  |  |
Total |  |  |  |  |  |
U.S. Federal |  | $ | — |  |  | $ | — |  |  |
State and local |  | (2,479) |  |  | (1,508) |  |  |
|  | $ | (2,479) |  |  | $ | (1,508) |  |  |
The provision (benefit) for income taxes is determined by applying the U.S. Federal statutory rate of 21% to income before income taxes, and the components are set forth below ($ in thousands):
|  | Years Ended December 31, |  |
|  | 2022 |  | 2021 |  |
U.S. Federal benefit at statutory rate |  | $ | (11,908) |  |  | $ | (6,085) |  |  |
Permanent non deductible expenses for U.S. taxes |  | 7,238 |  |  | 320 |  |  |
Change in state deferred |  | 8,604 |  |  | 622 |  |  |
Tax Return to Provision |  | (1) |  |  | 2,277 |  |  |
Expired options |  | 162 |  |  | — |  |  |
Other true ups |  | (25) |  |  | 1,407 |  |  |
AUS Foreign Rate Differential |  | (21) |  |  | — |  |  |
Section 382 NOL Limitation |  | 18,553 |  |  | 35,438 |  |  |
Sale of New Jersey State NOLs |  | (2,479) |  |  | (1,508) |  |  |
Valuation allowance for deferred tax assets |  | (22,602) |  |  | (33,979) |  |  |
Tax provision (benefit) |  | $ | (2,479) |  |  | $ | (1,508) |  |  |
Deferred income taxes at December 31, 2022 and 2021 consist of the following ($ in thousands):
|  | December 31,
|  | 2022 |  | 2021
Deferred Tax Assets: |  |  |  |
Accumulated net operating losses (tax effected) |  | $ | 13,132 |  |  | $ | 36,281 |
Right of use liability |  | 136 |  |  | 201 |
Share-based compensation |  | 3,027 |  |  | 3,086 |
Intangibles |  | 944 |  |  | 97 |
Capitalized Research and Development |  | 5,018 |  |  | — |
Accumulated depreciation |  | 14 |  |  | 26 |
Accrued payroll |  | 118 |  |  | 176 |
Other |  | 579 |  |  | 526 |
Deferred tax assets |  | 22,968 |  |  | 40,393 |
Deferred Tax Liabilities: |  |  |  |
Right of use asset |  | $ | (137) |  |  | $ | (204) |
Cash to Accrual |  | (99) |  |  | — |
Deferred tax liabilities |  | (236) |  |  | (204) |
Net deferred tax asset |  | 22,732 |  |  | 40,189 |
Valuation allowance |  | (22,732) |  |  | (40,189) |
Net deferred tax asset |  | $ | — |  |  | $ | — |
In assessing the realizability of deferred tax assets, including the net operating loss carryforwards (NOLs), the Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize its existing deferred tax assets. Based on its assessment, the Company has provided a full valuation allowance against its net deferred tax assets as their future utilization remains uncertain at this time. As of December 31, 2021, the Company had approximately $281 million of Federal NOLs available to offset future taxable income expiring from 2030 through 2036. The Company performed an analysis and determined that they had an ownership change of greater than 50% over a 3-year testing period on January 25, 2021. As a result, $168.8 million of the $281 million of Federal NOLs will expire unutilized. The Company wrote off that portion of the deferred tax asset and reduced the corresponding valuation allowance resulting in $112.3 million of remaining Federal NOLs. The write off of the deferred tax asset and the corresponding reduction in valuation allowance has no impact to the balance sheet or income statement. Losses incurred before the ownership change on January 25, 2021 will be subject to an annual limitation of $173 thousand under Internal Revenue Code Section 382. As of December 31, 2022, the Company had approximately $34 million of Federal NOLs available to offset future taxable income expiring from 2030 through 2036. The Company performed an analysis and determined that they had an ownership change of greater than 50% on September 15, 2022. As a result of the ownership change, $88.2 million of Federal NOLs will expire unutilized. The Company wrote off that portion of the deferred tax asset and reduced the corresponding valuation allowance resulting in $34 million of remaining Federal NOLs. The write off of the deferred tax asset and the corresponding reduction in valuation allowance has no impact to the balance sheet or income statement. Losses incurred before the ownership change on September 15, 2022 will be subject to an annual limitation of zero while losses incurred after September 15, 2022 will not be subject to limitations. As of December 31, 2022, Cend Therapeutics had approximately $10.9 million of Federal NOLs available to offset future taxable income. The Company performed an analysis and determined that there was an ownership change of greater than 50% on September 15, 2022. As of September 15, 2022 Cend has approximately $10.7 million of Federal and $15 million of state NOLs. The state NOLs will expire from the 2036 through 2042 tax years. Using a fair market value of $36.1 million and applying an applicable federal rate of 2.54% Cend will have an annual limitation of approximately $917 thousand each year. The Federal NOL of $106 thousand incurred in the post-acquisition period September 15, 2022 to December 31, 2022 is not subject to limitation, and does not expire. Cend’s wholly owned Australian subsidiary has $1.8 million of NOLs which will be carried forward and do not expire. There is a full valuation allowance against the NOLs. As of December 31, 2022 and 2021, the Company had State NOLs available in New Jersey of $35.5 million and $97.0 million, respectively, California of $10.0 million and $69.5 million, respectively, and New York City of $1.9 million and $13.0 million, respectively, to offset future taxable income expiring from 2032 through 2042. In accordance with Section 382 of the Internal Revenue code, the usage of the Company’s NOLs is limited given the change in ownership. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period when those temporary differences become deductible. The Company applies the FASB’s provisions for uncertain tax positions. The Company utilizes the two-step process to determine the amount of recognized tax benefit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant taxing authority. The Company recognizes interest and penalties associated with certain tax positions as a component of income tax expense. As of December 31, 2022 and 2021, the Company’s uncertain tax positions were $344 thousand and $0, respectively. Due to the acquisition of Cend, the Company’s uncertain tax positions increased by $344 thousand related to Federal and state credits and certain state NOLs. The Company will continue to evaluate its uncertain tax positions in future periods. The Company does not believe there will be any material changes in its unrecognized tax positions over the next year. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
|  | Years Ended December 31, |  |
|  | 2022 |  | 2021 |  |
Gross unrecognized tax benefit, beginning of period |  | $ | — |  |  | $ | — |  |  |
Additions based on tax positions related to the current year |  | — |  |  | — |  |  |
Additions based on tax positions related to the prior years |  | 344 |  |  | — |  |  |
Reductions due to lapse in statute of limitations and settlements |  | — |  |  | — |  |  |
Gross Unrecognized tax benefit, end of period |  | $ | 344 |  |  | $ | — |  |  |
For years prior to 2019 the federal statute of limitations is closed for assessing tax. The Company’s state tax returns remain open to examination for a period of three to four years from the date of the tax return filing. In December 2021, the Company received preliminary approval from the New Jersey Economic Development Authority (“NJEDA”) to participate in the Technology Business Tax Certificate Transfer Program (the “Program”). The Program permits qualified companies to sell a percentage of their New Jersey net operating losses (“NJ NOLs”) to unrelated profitable corporations. On February 22, 2022, the Company received final approval from NJEDA to sell $27.5 million of its NJ NOLs, which were subsequently sold to a qualifying and approved buyer pursuant to the Program for net proceeds of $2.3 million. The gross proceeds from the sale of the $2.5 million NJ NOLs related tax benefits (“NJ NOL Tax Benefits”), have been recorded as a benefit from income taxes and the loss on sale of the NJ NOL Tax Benefits” of $0.1 million recorded in other income (expense) in the consolidated financial statements. On August 16, 2022, the Inflation Reduction Act was signed into law. The Inflation Reduction Act includes various tax provisions, which are effective for tax years beginning on or after January 1, 2023. For tax years beginning after December 31, 2021, the Tax Cuts & Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and instead required taxpayers to capitalize and amortize them over five or 15 years beginning in 2022. Since the Company is in a net operating loss position, the capitalization of research and development costs did not have a material impact on the Company’s results of operations for the year ended December 31, 2022. The Company will continue to monitor possible future impact of changes in tax legislation.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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