INCOME TAXES

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

10. INCOME TAXES

The income tax benefit for the years ended December 31, 2023 and 2022 consists of the following:

	2023			2022
Federal
Current	$	-		$	-
Deferred		-			-
State and Local		-			-
Current		-			-
Deferred		(1,280,385	)		(1,567,026	)
Total	$	(1,280,385	)	$	(1,567,026	)

A reconciliation of the Company’s statutory tax rate to the effective rate for the years ended December 31, 2023 and 2022 is as follows:

	2023			2022
Federal statutory rate		21.0	%		21.0	%
State taxes, net of federal tax benefit		7.1			7.1
Permanent differences		(3.1	)		29.8
True-Up		(105.0	)		–
Other		(2.9	)		–
Change in valuation allowance and deferred rate change, net		89.0			(53.8	)
Effective tax rate		6.1	%		4.1	%

The components of the Company’s deferred tax asset as of December 31, 2023 and 2022 are as follows:

	December 31,
	2023			2022
Net operating loss carryforwards	$	67,310,000		$	79,800,000
Section 174		4,929,000			-
Other deferred tax assets, net		2,016,000			13,287,000
Subtotal		74,255,000			93,087,000
Valuation allowance		(72,974,615	)		(91,519,974	)
Total deferred tax asset	$	1,280,385		$	1,567,026

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, 2023, after its evaluation of its New Jersey NOLs as discussed more fully below, the Company reduced the valuation reserve and recognized $1.3 million as a deferred income tax asset. Such tax assets are available to be recognized and benefit future periods.

As of December 31, 2023, the Company had federal net operating loss carryforwards of approximately $307 million, net of net operating losses utilized in prior years of which $218 million, if unused, will expire starting in 2024 through 2037. The federal NOLs generated for the years ended after 2017 of approximately $78 million can be carried forward indefinitely. As of December 31, 2023, the Company had state net operating loss carryforwards of approximately $44 million, net of net operating losses utilized in prior years, and, if unused, will expire starting in 2029 through 2042.

Effective for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses incurred that are considered incidental to research and experimentation (“R&E”) activities under IRC Section 174. While taxpayers historically had the option of deducting these expenses under IRC Section 174, the December 2017 Tax Cuts and Jobs Act mandates capitalization and amortization of R&E expenses for tax years beginning after December 31, 2021. Expenses incurred in connection with R&E activities in the US must be amortized over a 5-year period if incurred, and R&E expenses incurred outside the US must be amortized over a 15-year period. R&E activities are broader in scope than qualified research activities considered under IRC Section 41 (relating to the research tax credit). For the year ended December 31, 2023, the Company performed an analysis based on available guidance and determined that it will continue to be in a loss position even after the required capitalization and amortization of its R&E expenses. The Company will continue to monitor this issue for future developments, but it does not expect R&E capitalization and amortization to require it to pay cash taxes now or in the near future.The Company’s income tax returns for 2019 to 2022 are still open and subject to audit. In addition, net operating losses arising from prior years are also subject to examination at the time they are utilized in future years.

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. As of December 31, 2023, and 2022, there were no unrecognized tax benefits. The Company recognizes accrued interest and penalties as income tax expense. No amounts were accrued for the payment of interest and penalties at December 31, 2023 and 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position in the next year.

Sections 382 and 383 of the Internal Revenue Code provide for a limitation on the annual use of NOL and tax credit carryforwards following certain ownership changes that could limit the Company’s ability to utilize these carryforwards. The Company has completed an analysis to determine if such ownership changes have occurred and concluded it was more likely than not that there were changes in ownership. Due to the existence of full valuation allowance, limitations under Section 382 and 383 will not impact the Company’s effective tax rate. Further analyses will be performed prior to recognizing the benefits of any losses or credits in the financial statements.

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 $1.3 million and $1.6 million of its New Jersey NOLs in 2023 and 2022, respectively. The sale of these net operating losses resulted in net proceeds to the Company of approximately $1.3 million in 2023 and $1.6 million in 2022. 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 $0.3 million in net operating losses under this maximum lifetime benefit.