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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Taxes [Abstract]  
INCOME TAXES

NOTE 15 – INCOME TAXES

 

As of December 31, 2023, the Company had net operating loss (“NOLs”) carry-forwards for federal income tax purposes of approximately $16.7 million, consisting of pre-2018 losses in the amount of approximately $3.3 million that expire from 2033 through 2037, and post-2017 losses in the amount of approximately $13.4 million that will never expire. These net operating losses are available to offset future taxable income. The Company was formed in 2008 as a Nevada Corporation. Activity prior to incorporation is not reflected in the Company’s corporate tax returns. In the future, the cumulative net operating loss carry-forward for income tax purposes may differ from the cumulative financial statement loss due to timing differences between book and tax reporting.

 

The provision for Federal income tax consists of the following for the years ended December 31, 2023 and 2022:

 

   2023   2022 
Federal income tax benefit (expense) attributable to:        
Current operations  $5,284,000   $2,402,000 
State tax effect, net of federal benefit   569,000    545,000 
Option exercise benefits (expenses), net of Section 162M limitations   (3,100,000)   (268,000)
Transaction costs   (360,000)   
—
 
Other adjustments   44,922    221,000 
Valuation allowance   5,160,000    (2,900,000)
Income tax benefit  $7,597,922   $
—
 

 

   2023   2022 
         
Current tax benefit (expense) - Federal  $
—
   $
—
 
Current tax benefit (expense) - State   (97,452)   
—
 
Total current (expense)   (97,452)   
—
 
Deferred tax benefit (expense) - Federal   6,488,661    
—
 
Deferred tax benefit (expense) - State   1,206,713    
—
 
Total deferred benefit   7,695,374    
—
 
Total tax benefit on loss  $7,597,922   $
—
 

 

The cumulative tax effect of significant items comprising our net deferred tax amount at the expected rate of 21% is as follows as of December 31, 2023 and 2022:

 

   2023   2022 
Deferred tax assets attributable to:        
Net operating loss carryover  $4,864,000   $5,545,000 
Stock compensation   3,744,000    3,953,000 
Operating lease liability   115,000    63,000 
Section 174 capitalized expenses   2,533,000    789,000 
Fixed assets   
—
    126,000 
Other   103,000    16,000 
Deferred tax assets  $11,720,000   $10,492,000 
           
Deferred tax liabilities attributable to:          
Intangibles  $(12,393,000)  $(2,102,000)
Operating lease right-of-use assets   (110,000)   (63,000)
Goodwill   
—
    (106,000)
Other   (198,424)   (59,000)
Deferred tax liabilities   (12,701,424)   (2,330,000)
Net deferred tax (liability) asset  $(981,424)  $8,162,000 
Valuation allowance   (3,356,000)   (8,162,000)
Net deferred tax liabilities  $(4,337,424)  $
—
 

 

The valuation allowance decreased $4,806,000, during the year ended December 31, 2023, as we determined that a portion of the deferred tax assets associated with historical NOL's were realizable. The ultimate realization of deferred tax assets is dependent upon the Company’s ability to generate sufficient taxable income during the periods in which the net operating losses expire and the temporary differences become deductible. The Company has determined that there is significant uncertainty that the results of future operations and the reversals of existing taxable temporary differences will generate sufficient taxable income to realize the deferred tax assets; therefore, a valuation allowance has been recorded. In making this determination, the Company considered historical levels of income, projections for future periods, and the significant amount of tax deductions to be generated from the future exercise of stock options.

 

The tax years 2020 to 2023 remain open for potential audit by the Internal Revenue Service. There are no uncertain tax positions as of December 31, 2022 or December 31, 2023, and none are expected in the next 12 months. The Company’s foreign subsidiaries are cost centers that are primarily reimbursed for expenses, as a result they generate an immaterial amount of income or loss. Pretax book income (loss) is all from domestic operations. Up to four years of returns remain open for potential audit in foreign jurisdictions, however any audits for periods prior to ownership by the Company are the responsibility of the previous owners.

 

Under certain circumstances issuance of common shares can result in an ownership change under Internal Revenue Code Section 382, which limits the Company’s ability to utilize carry-forwards from prior to the ownership change. Any such ownership change resulting from stock issuances and redemptions could limit the Company’s ability to utilize any net operating loss carry-forwards or credits generated before this change in ownership. These limitations can limit both the timing of usage of these laws, as well as the loss of the ability to use these net operating losses. The Company had an ownership change as described in IRC Section 382 on March 18, 2014. The Company NOL’s generated up until March 18, 2014, have been fully released.