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INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES

10. INCOME TAXES

 

The income tax benefit for the years ended December 31, 2022 and 2021 consists of the following:

 

   2022   2021 
Federal          
Current  $-   $- 
Deferred   -    - 
State and Local   -    - 
Current   -    - 
Deferred   (1,567,026)   (1,383,446)
Total  $(1,567,026)  $(1,383,446)

 

A reconciliation of the Company’s statutory tax rate to the effective rate for the years ended December 31, 2022 and 2021 is as follows:

 

   2022   2021 
Federal statutory rate   21.0%   21.0%
State taxes, net of federal tax benefit   7.1    7.8 
Permanent differences   29.8    (15.0)
Other   –    – 
Change in valuation allowance and deferred rate change, net   (53.8)   (7.6)
Effective tax rate   4.6%   6.2%

 

The components of the Company’s deferred tax asset as of December 31, 2022 and 2021 are as follows:

 

   2022   2021 
   December 31, 
   2022   2021 
Net operating loss carryforwards  $79,800,000   $64,915,000 
Other deferred tax assets, net   13,287,000    5,213,000 
Subtotal   93,087,000    70,128,000 
Valuation allowance   (91,519,974)   (68,744,554)
Total deferred tax asset  $1,567,026   $1,383,446 

 

The evaluation of the realizability of such deferred tax assets in future periods is made based upon a variety of factors that affect the Company’s ability to generate future taxable income, such as intent and ability to sell assets and historical and projected operating performance. The Company has established a valuation reserve for its deferred income tax assets other than those related to its New Jersey NOLs. At December 31, 2021, after its evaluation of its New Jersey NOLs as discussed more fully below, the Company reduced the valuation reserve and recognized $1.6 million as a deferred income tax asset. Such tax assets are available to be recognized and benefit future periods. As of December 31, 2022, the Company had federal net operating loss carryforwards of approximately $330 million, net of net operating losses utilized in prior years of which $225 million, if unused, will expire starting in 2023 through 2037. The Federal net operating loss generated for the years ended December 31, 2018, 2019, 2020, and 2021 of approximately $64 million can be carried forward indefinitely. However, the deduction for net operating losses incurred in tax years beginning after January 1, 2018 is limited to 80% of annual taxable income. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act provides for economic and cash liquidity stimulus through various means including payroll tax credits, payroll tax deferral, short-term changes in tax deductibility of interest expenses among other things. The Act also permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. Previously, NOLs generated after December 31, 2017 were limited to 80% of taxable income in future years. In addition, the CARES Act allows NOLs incurred in 2018 through 2021 to be carried back to each of the five preceding tax years. The Company evaluated the various aspects of the Cares Act and determined that there was no material effect on the Financial Statements. As of December 31, 2022, the Company had state net operating loss carryforwards of approximately $58 million, net of net operating losses utilized in prior years, and, if unused, will expire starting in 2029 through 2041.

 

 

During 2022, 2021 and in prior years, the Company performed analyses to determine if there were changes in ownership, as defined by Section 382 of the Internal Revenue Code that would limit its ability to utilize certain net operating loss and tax credit carry forwards. The Company determined that it experienced ownership changes, as defined by Section 382, in connection with certain common stock offerings in July 2011, February 2013, June 2013, June 2015, February 2017, June 2017, October 2017, August 2018, February 2020, January 2021 and November 2022. As a result, the utilization of the Company’s federal tax net operating loss carry forwards generated prior to the ownership changes are limited. As of December 31, 2022, the Company has net operating loss carry forwards for U.S. federal and state tax purposes of approximately $325 million, before excluding net operating losses that have been limited as a result of Section 382 limitations. The annual limitation due to Section 382 for net operating loss carry forward utilization is approximately $4.2 million per year for approximately $90 million in net operating loss carry forwards existing at the ownership change occurring in July 2011, approximately $1.4 million per year for approximately $34 million of additional net operating losses occurring from July 2011 to the ownership change that occurred in February 2013, approximately $1.5 million per year for approximately $4 million of additional net operating losses occurring from February 2013 to the ownership change that occurred in June 2013, approximately $1.6 million per year for approximately $40 million of additional net operating losses occurring from June 2013 to the ownership change that occurred in June 2015, approximately $0.3 million per year for approximately $35 million of additional net operating losses occurring from June 2015 to the ownership change that occurred in February 2017, approximately $0.3 million per year for approximately $7 million of additional net operating losses occurring from February 2017 to the ownership change that occurred in June 2017, approximately $0.8 million per year for approximately $5 million of additional net operating losses occurring from June 2017 to the ownership change that occurred in October 2017, approximately $1.5 million per year for approximately $30 million of additional net operating losses occurring from October 2017 to the ownership change that occurred in August 2018, approximately $0.8 million per year for approximately $15 million of additional net operating losses occurring from August 2018 to the ownership change that occurred in February 2020 and approximately $2.0 million per year for approximately $40 million of additional net operating losses occurring from February 2020 to the ownership change that occurred in January 2021 and approximately $28.0 million per year for approximately $30 million of additional net operating losses occurring from January 2021 to the ownership change that occurred in November 2023. The utilization of these net operating loss carry forwards may be further limited if the Company experiences future ownership changes as defined in Section 382 of the Internal Revenue Code.

 

Sale of New Jersey Net Operating Losses

 

Since 2018, the Company has annually submitted applications to sell a portion of the Company’s New Jersey NOLs as part of the Technology Business Tax Certificate Program sponsored by The New Jersey Economic Development Authority. Under the program, emerging biotechnology companies with unused NOLs and unused research and development credits are allowed to sell these benefits to other New Jersey-based companies. As part of the Technology Business Tax Certificate Program, the Company sold $1.6 million and $1.5 million of its New Jersey NOLs in 2022 and 2021, respectively. The sale of these net operating losses resulted in net proceeds to the Company of approximately $1.6 million in 2022 and $1.4 million in 2021. During 2021, the New Jersey State Legislature increased the maximum lifetime benefit per company from $15 million to $20 million, which will allow the Company to participate in this funding program in future years for up to an additional $1.9 million in net operating losses under this maximum lifetime benefit.