NOTE 13 – INCOME TAXES

Income tax expense differs from the statutory amounts for each of the following years (in thousands):

 SCHEDULE OF INCOME TAX EXPENSE 

Deferred taxes are provided for the temporary differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities. The temporary differences that give rise to deferred tax assets and liabilities were as follows (in thousands):

 SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 

Net operating Loss and Other Carryforwards

As of December 31, 2023, the Company had $373.9 million of U.S. federal net operating loss carryforwards and $4.7 million of general business credit carryforwards. These carryforwards expire as follows (in thousands):

 SUMMARY OF NET OPERATING LOSS AND GENERAL BUSINESS CREDIT CARRYFORWARDS 

On December 22, 2017, the “Tax Cuts and Jobs Act” was signed into law. The tax reform has the following effects on the Company: (1) permanently reduces the maximum corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017, (2) allows temporary 100% expensing for certain business assets and property placed in service after September 27, 2018 and before January 1, 2023, (3) disallows NOL carrybacks but allows for the indefinite carryforward of those NOLs which applies to losses arising in tax years beginning after December 31, 2018 and, (4) limits NOL deductions for each year equal to the lesser of the available carryover or 80% of a taxpayer’s pre-NOL deduction taxable income. This applies to losses arising in tax years ending on or after December 31, 2017. As of December 31, 2023 and 2022, the Company has concluded that it is more likely than not that the Company will not realize the benefit of its deferred tax assets due to its history of losses. Accordingly, the net deferred tax assets have been fully reserved.

In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, a change in equity ownership of greater than 50% within a three-year period results in an annual limitation on the Company’s ability to utilize its NOL carryforwards created during the tax periods prior to the change in ownership. The Company has not completed an ownership change analysis pursuant to Section 382. Because the Company has incurred cumulative net operating losses since inception, all tax years remain open to examination by U.S. federal and state income tax authorities.

As of December 31, 2023, the Company had $265.2 million of U.S. federal net operating loss carryforwards that do not expire and can be carried forward indefinitely. Such net operating loss carryforwards can only be used to offset 80% of taxable income in any given tax year. The Company also has $3.6 million of state net operating loss carryforwards in varying amounts depending on the different state tax laws.

The Company acquired MacroChem Corporation on March 25, 2009, and Somanta Pharmaceuticals, Inc. on January 4, 2008. Both of these corporations were loss-making entities at the time of acquisition. As a result, the net operating losses related to those acquisitions may be subject to annual limitations. The Company has not performed a study to determine whether or not there is such a limitation.

Valuation Allowance

At December 31, 2023 and 2022, the Company maintained a full valuation allowance on its deferred tax assets based on a history of cumulative losses. The Company will not record income tax benefits in the financial statements until it is determined that it is more likely than not that the Company will generate sufficient taxable income to realize the deferred income tax assets. In 2023, the valuation allowance increased by approximately $8.7 million. In 2022, the valuation allowance increased by approximately $9.5 million.

Unrecognized Tax Benefits

At December 31, 2023 and 2022, the Company had no reserves for unrecognized tax benefits.

The Company and its subsidiaries are subject to taxation in the United States. The Company is subject to U.S. federal and state examinations for 2020 and forward, and 2019 and forward, respectively. However, net operating losses are subject to audit in any tax year in which those losses are utilized, notwithstanding the year of origin.