Prior to the Merger, the Company was treated as a partnership for federal income tax purposes.

 

Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which differences are expected to reverse.  A deferred tax liability of million was recorded for the basis differences associated with indefinite-lived in-process R&D assets. In the Company abandoned future development efforts for the IPR&D asset associated with RES- and recorded an impairment charge of million which is equal to its acquired value. Upon recognizing the impairment, the Company recognized an income tax benefit of million and reduced the carrying value of the related deferred tax liability as of (See Note

 

Significant components of the Company's deferred tax assets for federal income taxes as of consisted of the following:

 

 

 

The changes in the valuation allowance that occurred during were as follows:

 

 

 

The Company does not have unrecognized tax benefits as of   The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

The Company had net operating loss carryforwards (“NOL”) for federal and state income tax purposes at of approximately:

 

 

Upon completion of the Merger, the Company acquired the net operating losses for federal and state income tax purposes which RestorGenex has incurred since inception. The Tax Reform Act of (the “Act”) provides for limitation on the use of net operating loss following certain ownership changes (as defined in the Act) that could limit the Company’s ability to utilize these carryforwards. The Company experienced an ownership change as a result of the Merger.

The net operating loss carryforwards begin expiring in for federal income tax purposes and for state income tax purposes. In the number of outstanding shares of RestorGenex common stock increased in connection with the Merger discussed in note This increase in the number of shares outstanding resulted in a change of ownership, under the provisions of Internal Revenue Code Section and similar state provisions, and limits the Company’s ability to utilize these net operating loss carryforwards to offset future income. The amounts above reflect the amount of NOLs that the Company expects to be able to utilize as a result of the limitation. The Company recorded a valuation allowance of the deferred tax assets as of because of the uncertainty of their realization.

 

A reconciliation of income tax benefit at the statutory federal income tax rate and income taxes as reflected in the financial statements as of is as follows:

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company’s to tax years remain open and subject to examination.