Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.23.1
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of loss before income taxes are as follows:
Year Ended December 31,
2022 2021
Domestic $ (10,563,302) $ (10,639,818)
Foreign (3,133,318) (3,323,470)
Total Loss Before Income Taxes $ (13,696,620) $ (13,963,288)

The components of income tax (benefit) expense are as follows:
Year Ended December 31,
2022 2021
Deferred Taxes:
Federal $ 4,954  $ (24,086)
State (117,964) (168,517)
Total Deferred Taxes $ (113,010) $ (192,603)
Income Tax Benefit $ (113,010) $ (192,603)

The difference between the effective rate reflected in the provision for income taxes on loss before taxes and the amounts determined by applying the applicable statutory U.S. tax rate are analyzed below:
Year Ended December 31,
2022 2021
United States Federal Income Tax Rate 21.00  % 21.00  %
State Taxes, Net of Federal Benefit (2.59) 3.35 
Permanent Differences (9.24) 0.72 
Goodwill Impairment —  (6.07)
Change in Valuation Allowance (9.53) (21.33)
Research and Development Credits 0.58  1.09 
Tax Rate Differential 2.89  1.00 
State Non-Income Based Tax —  0.01 
Other (0.26) 1.61 
Effective Tax Rate Expense 2.84  % 1.38  %
The Company’s deferred tax assets and liabilities consist of the following:
Year Ended December 31,
2022 2021
Net Deferred Tax Liability:
Net Operating Loss Carryforwards $ 22,809,667  $ 20,689,134 
Research and Development Credit Carryforwards 2,925,890  2,853,598 
Capitalized Research and Development 4,606,902  5,640,428 
Stock-Based Compensation 782,355  835,432 
Cash Versus Accrual Adjustments 336,360  128,188 
Total Deferred Tax Assets 31,461,174  30,146,780 
Valuation Allowance (29,593,286) (28,298,339)
Net Deferred Tax Asset 1,867,888  1,848,441 
Depreciation and Amortization (477) (956)
In-Process Research and Development (2,556,532) (2,649,616)
Net Deferred Tax Liability $ (689,121) $ (802,131)
As of December 31, 2022, the Company has federal and state net operating loss carryforwards of approximately $80.5 million and $52.6 million, respectively, to offset future federal and state taxable income. Federal NOL carryforwards as of December 31, 2017 totaling $46.1 million, and state NOL carryforwards as of December 31, 2022 totaling $52.6 million will expire at various dates through 2042. Federal NOL carryforwards generated during the years ended December 31, 2018 and forward totaling $34.4 million will carry forward indefinitely, but their utilization will be limited to 80% of taxable income. The Company has foreign net operating loss carryforwards of $10.7 million as of December 31, 2022, which can be carried forward indefinitely. As of December 31, 2022, the Company also has federal and state research and development tax credit carryforwards of approximately $2.5 million and $0.5 million, respectively, to offset future income taxes, which expire at various times through 2042. The federal and state net operating loss and research tax credit carryforwards may be subject to the limitations provided in the Internal Revenue Code (“IRC”) Sections 382 and 383. Approximately $0.6 million of the federal net operating loss attributable to Jade is subject to a Section 382 limitation. Jade’s carryover of its research and development credits will be subject to the Section 383 limitation.
The Company files United States federal income tax returns and income tax returns in the Commonwealth of Massachusetts, California, North Carolina and Utah, as well as foreign tax returns for its subsidiaries in Austria and Australia. The Company filed all foreign tax returns for its former French subsidiary EyeGate Pharma S.A.S., which was dissolved December 31, 2021. The Company is not under examination by any jurisdiction for any tax year.
The Company has recorded a valuation allowance against its United States and foreign deferred tax assets in each of the years ended December 31, 2022, and 2021 because the Company’s management believes that it is more likely than not that these assets will not be realized. The valuation allowance increased by approximately $1.3 million and $3.0 million during the years ended December 31, 2022 and 2021, respectively, primarily as a result of the increase in net operating losses and credits, adjustments for accrual to cash basis items, and capitalized research and development expenses.
As of December 31, 2022 and 2021, the Company had no unrecognized tax benefits or related interest and penalties accrued. The Company will recognize interest and penalties related to income taxes in income tax expense. The Company has not, as yet, conducted a study of R&D credit carryforwards, which are fully reserved for. This study may result in an adjustment to the Company’s R&D credit carryforwards and related
valuation allowance, however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position.
The net operating loss and tax credit carryforwards are subject to review by the Internal Revenue Service in accordance with the provisions of Section 382 of the Internal Revenue Code. Under this Internal Revenue Code section, substantial changes in the Company’s ownership may limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset the Company’s taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of the Company of more than 50% within a three-year period. Any such annual limitation may significantly reduce the utilization of the Company’s net operating loss carryforwards before they expire. The closing of the Company’s initial public offering, alone or together with transactions that have occurred or that may occur in the future, may trigger an ownership change pursuant to Section 382, which could limit the amount of research and development tax credit and net operating loss carryforwards that could be utilized annually in the future to offset the Company’s taxable income, if any. Any such limitation as the result of the Company’s additional sales of common stock by the Company could have a material adverse effect on the Company’s results of operations in future years.