Income Taxes

3 Months Ended

Mar. 31, 2023

Income Taxes

Income Taxes

(8)Income Taxes

During the three-month periods ended March 31, 2023 and 2022, the Company recorded approximately $34,500 and $4,500, respectively, of income tax benefit. The income tax benefit in 2023 was mainly related to a partial reversal of the valuation allowance on its deferred tax assets.

ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Assuming no acquisition is completed or material changes in results through year-end 2023, the Company has partially reversed the valuation allowances as of March 31, 2023. A deferred tax benefit of $36,000 was recorded during the quarter ended March 31, 2023.

Management of the Company will continue to assess the need for this valuation allowance and will make adjustments when or if appropriate.

(8)Income Taxes (continued)

At March 31, 2023, the Company had federal NOLs of approximately $103.6 million, of which approximately $100.4 million will expire in the years 2025 through 2036, and New Jersey state NOLs of approximately $25.9 million that expire in the years 2031 through 2042. Under the Tax Cuts and Jobs Act, net operating losses generated in tax years beginning after December 31, 2017 have an unlimited carryforward period, and the amount of net operating loss allowed to be utilized each year is limited to 80% of taxable income.

At March 31, 2023, the Company has federal research and development (“R&D”) credit carryforwards of approximately $11.1 million that expire in the years 2024 through 2029. These deferred tax assets were subject to a valuation allowance such that the deferred tax expense incurred as a result of the expiration of the R&D credit carryforwards was offset by a corresponding deferred tax benefit for the related reduction in valuation allowance.

The Company's ability to use the NOLs and R&D tax credit carryforwards may be limited, as they are subject to certain limitations due to ownership changes as defined by rules pursuant to Section 382 of the Internal Revenue Code of 1986, as amended. However, management of the Company believes that the Company's NOLs will not be limited by any changes in the Company's ownership as a result of the successful completion of the Rights Offering. (See Note 13 to the Consolidated Financial Statements.) Additionally, in an effort to protect stockholder value by attempting to protect against a possible limitation on the Company's ability to use its NOLs, the Board adopted a Section 382 rights plan. (See Note 11 to the Consolidated Financial Statements.)

The Company has not recorded a liability for unrecognized income tax benefits.