Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.1
Income Taxes
12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

Note 7 – Income Taxes

 

The Company’s income tax (benefit)/provision is as follows for the years ended December 31, 2023 and 2022:

 

    2023     2022  
Current   $ -     $ -  
Deferred     4,129,000       (5,914,000 )
Change in Valuation Allowance     (4,129,000 )     5,914,000  
Income Tax Benefit   $ -     $ -  

 

The reconciliation of income taxes using the statutory U.S. income tax rate and the benefit from income taxes for the years ended December 31, 2023 and 2022 are as follows:

 

    2023     2022  
             
Statutory U.S. Federal Income Tax Rate     (21.0 )%     (21.0 )%
New Jersey State income taxes, net of U.S. Federal tax effect     45.5 %     (14.5 )%
Adjustment to deferred tax assets     82.8 %     (4.1 )%
Other     - %     0.7 %
Change in Valuation Allowance     (107.3 )%     38.9 %
Net     0.0 %     0.0 %

 

As of December 31, 2023, and 2022, the Company had U.S. federal net operating loss carry forwards of approximately $113.1 million and $107.1 million, respectively. Approximately $51.5 million of the U.S. federal net operating loss generated in tax years beginning before January 1, 2018 expire beginning with the year ending December 31, 2024 through 2037. The remaining U.S. federal net operating loss of approximately $61.6 million does not expire, however it is limited to 80% of each subsequent year’s net income. As of December 31, 2023, and 2022, the Company had U.S. state net operating loss carry forwards of approximately $45.2 million and $41.0 million, respectively, some of which expire beginning with the year ending December 31, 2024 through 2043. U.S. federal net operating losses of approximately $2.3 million expired during 2023. The timing and manner in which the Company can utilize operating loss carryforwards in any year may be limited by provisions of the Internal Revenue Code regarding changes in ownership of corporations. Such limitation may have an impact on the ultimate realization of its carryforwards and future tax deductions.

 

Under Section 382 of the Code, use of the Company’s net operating loss carryforwards is limited if the Company experiences a cumulative change in ownership of greater than 50% in a moving three-year period. The Company experienced an ownership change as a result of the Merger and therefore the Company’s ability to utilize its net operating loss and certain credit carryforwards are limited. The limitation is determined by the fair market value of the Company’s common stock outstanding immediately prior to the ownership change, multiplied by the applicable federal rate. It is expected that the Merger caused the Company’s net operating loss carryforwards to be limited. However, the limitation had no impact on the Company’s financial statements since the Company recorded a full valuation allowance for the deferred tax assets as of December 31, 2023 and 2022.

 

The principal components of the deferred tax assets and liabilities, and related valuation allowances as of December 31, 2023 and 2022 are as follows:

 

    2023     2022  
             
Reserves and other   $ 796,000     $ 745,000  
Net operating loss carry-forwards     26,494,000       26,176,000  
Capitalized research and development     3,946,000       2,177,000  
Research and development tax credit     1,326,000       610,000  
Share-based compensation     1,108,000       4,542,000  
Warrant liability     (2,860,000 )     -  
Derivative liability     (688,000 )     -  
Valuation Allowance     (30,122,000 )     (34,250,000 )
Net deferred tax asset   $ -     $ -  

 

 

The valuation allowance for deferred tax assets (decreased) by approximately $(4.1) million during the year ended December 31, 2023, due mainly to write-offs of the gross deferred tax asset related to share-based compensation, net of increases in the Company’s deferred tax assets related to its net operating loss carryforward and capitalized research expenses. The valuation allowance for deferred tax assets increased by approximately $5.9 million during the year ended December 31, 2022, due mainly to increases in the Company’s deferred tax asset related to its net operating loss carryforward. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets may be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating losses and temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment.

 

The Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of general and administrative expense. There were no amounts accrued for penalties and interest for the years ended December 31, 2023 and 2022. The Company does not expect its uncertain tax position to change during the next twelve months. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

 

The Company files U.S. federal income tax returns and state income tax returns. Since the Company had losses in the past, all prior years that generated net operating loss carryforwards are open and subject to audit examination in relation to the net operating loss generated from those years.