Annual report pursuant to Section 13 and 15(d)

INCOME TAX

v3.23.1
INCOME TAX
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAX
NOTE 9: INCOME TAX
 
 
Income tax expense for the years ended December 31, 2022 and 2021 is summarized as follows.
 
 
 
December 31, 2022
 
 
December 31, 2021
 
Deferred:
 
 
 
 
 
 
 
 
Federal
 
$
(11,457,628
)
 
$
(8,581,566
)
State
 
 
(3,810,261
)
 
 
(2,853,820
)
Change in valuation allowance
 
 
15,267,889
 
 
 
11,435,386
 
Income tax expense (benefit)
 
$
-
 
 
$
-
 
 
 
The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate to the income taxes reflected in the Statement of Operations:
 
 
 
December 31, 2022
 
 
December 31, 2021
 
Book income (loss)
 
 
21.00
%
 
 
21.00
%
State taxes
 
 
6.98
 
 
 
 
 
6.98
%
Change in the fair value of warrant derivative
 
 
11.80
%
 
 
2.02
%
Other permanent items
 
 
2.49
%
 
 
1.47
%
Valuation allowance
 
 
(42.2
)%
 
 
(31.51
)%
Tax expense at actual rate
 
 
-
 
 
 
 
 
-
 
 
The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at December 31, 2022 and 2021 are as follows:
 
 
 
December 31, 2022
 
 
December 31, 2021
 
Deferred tax assets:
 
 
 
 
 
 
 
 
Net operating loss carryforward
 
$
37,803,576
 
 
$
25,466,331
 
Depreciation
 
 
(961,977
)
 
 
(827,012
)
Deferred rent
 
 
-
 
 
 
(8,267
)
Research and development
 
 
2,845,164
 
 
 
-
 
Stock-based compensation
 
 
669,382
 
 
 
457,224
 
Total gross deferred tax assets
 
 
40,356,145
 
 
 
25,088,276
 
Less: valuation allowance
 
 
(40,356,145
)
 
 
(25,088,276
)
Net deferred tax assets
 
$
-
 
 
$
-
 
 
Deferred income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled.
 
Section 382 of the Internal Revenue Code (“Section 382”), imposes limitations on a corporation’s ability to utilize its Net Operating Losses (“NOLs”), if it experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership percentage of certain stockholders in the stock of the corporation by more than 50% over a three-year period. In the event of an ownership change, utilization of the NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate. The Company has not completed a Section 382 study at this time; however, should a study be completed certain NOLs may be subject to such limitations. Any future annual limitation may result in the expiration of NOLs before utilization.
 
As of December 31, 2022, the Company had approximately $132,900,000 of federal net operating loss (“NOL”) carryforwards that may be available to offset future taxable income. As of that date, approximately $10,800,000 of federal net operating losses will expire in various amounts between 2035 and 2037. The remaining federal NOL have no expiration. The Company also had approximately $132,900,000 of state NOLs that begin to expire in 2035. The Company has recorded a 100% valuation allowance on the deferred tax assets due to the uncertainty of its realization. The net change in the valuation allowance for the years ended December 31, 2022 and 2021 was an increase of $15,267,889 and $11,435,386, respectively.
 
In the ordinary course of business, the Company’s income tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessment by these taxing authorities. Accordingly, the Company believes that it is more likely than not that it will realize the benefits of tax positions it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with FASB ASC 740. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. The Company is no longer subject to the U.S. federal and state income tax examination to the extent the net operating losses are carried forward and impact a year that is open to examination by the authorities. The Company’s income tax returns for the years 2017-2019 are subject to examination.