INCOME TAXES

12 Months Ended

Jun. 30, 2023

INCOME TAXES

INCOME TAXES

(15) INCOME TAXES

The Company has participated in the State of New Jersey’s Technology Business Tax Certificate Transfer Program (the “Program”) sponsored by The New Jersey Economic Development Authority. The Program enables approved biotechnology companies with unused Net Operating Losses (“NOLs”) and unused research and development credits (“R&D credits”) to sell these tax benefits for at least 80% of the value of the tax benefits to unaffiliated, profitable corporate taxpayers in the State of New Jersey. The Company received final approval in December 2022 for the sale of NOLs and R&D credits that resulted in the receipt of $4,674,999 in January 2023. As a result, the Company recorded an income tax benefit for the year ended June 30, 2023.

For fiscal 2023 and 2022, the Company recorded no income tax expense as a result of the generation of operating losses that were subject to a full valuation allowance.

Deferred tax assets and liabilities are determined based on the estimated future tax effect of differences between the financial statement and tax reporting basis of assets and liabilities, as well as for, net operating loss carryforwards and research and development credit carryforwards, given the provisions of existing tax laws.

As of June 30, 2023, the Company had state NOL carryforwards of approximately $155,000,000, which will expire, if not utilized, between 2036 and 2043, federal NOL carryforwards of approximately $138,000,000 and federal R&D and Alternative Minimum Tax (“AMT”) credits of approximately $8,100,000, which expire, if not utilized, between 2035 and 2043, and foreign tax credits of $582,500, which expire, if not utilized, in 2028.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the application of loss limitation provisions related to ownership changes. The Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. The Company also considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax‑planning strategies in making this assessment. Based on a history of losses incurred, the Company has recognized a full valuation allowance against its deferred tax assets during the years ended June 30, 2023 and 2022. The Company’s valuation allowance increased by $5,653,000 and $3,927,000 for the years ended June 30, 2023 and 2022, respectively.

A sustained period of profitability in the Company’s operations is required before it would change its judgment regarding the need for a full valuation allowance against its net deferred tax assets. Until such time, the use of NOL carryforwards and tax credits to offset profits, if any, will reduce the overall level of deferred tax assets subject to valuation allowance.

The Tax Reform Act of 1986 (the “Act”) provides for limitation on the use of the Company’s net operating loss and research and development tax credit carryforwards following certain ownership changes (as defined by the Act) that could limit the Company’s ability to utilize these carryforwards. Since its inception, the Company has completed several financings and sales of common stock which has resulted in multiple ownership changes defined by Section 382 of the Act. Accordingly, the Company’s ability to utilize the aforementioned carryforwards are subject to limitation under Section 382.

If the Company undergoes a future ownership change or as it completes its Section 382 limitation assessments, any unutilized carryforwards that were not previously subject to a Section 382 limitation may become subject to limitation which may result in a significant limitation and loss of net operating loss carryforwards and research and development credits.

Additionally, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes; therefore, the Company may not be able to take full advantage of these carryforwards for federal income tax purposes. Accordingly, a portion of the carryforwards may expire unutilized.

The Company’s net deferred tax assets are as follows:

	June 30,			June 30,
	2023			2022
Net operating loss carryforwards	$	40,073,000		$	35,331,000
Research and development and AMT tax credits		8,094,000			7,171,000
Foreign tax credits		583,000			583,000
Basis differences in fixed assets and other		2,766,000			2,778,000
		51,516,000			45,863,000
Valuation allowance		(51,516,000	)		(45,863,000	)
Net deferred tax assets	$	-		$	-

The Company recognizes interest expense and penalties on uncertain income tax positions as a component of interest expense. No interest expense or penalties were recorded for uncertain income tax matters in fiscal 2023 or 2022. As of June 30, 2023 and 2022, the Company had no liabilities for uncertain income tax matters.