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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes
5. Income Taxes

  

The Inflation Reduction Act (“IRA”) and Chips and Science Act (“CHIPS Act”) were both enacted in August 2022. The IRA introduced new provisions including a 15% corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period and a 1% excise tax surcharge on stock repurchases. The CHIPS Act provides a variety of incentives associated with investments in domestic semiconductor manufacturing and related activities. Both the IRA and CHIPS Act are applicable for tax years beginning after December 31, 2022 and had no impact to the Company’s consolidated financial statements for the year ended December 31, 2022.

 

On March 11, 2021, the American Rescue Plan Act of 2021 (“American Rescue Plan”) was signed into law to provide additional relief in connection with the ongoing COVID-19 pandemic. The American Rescue Plan includes, among other things, provisions relating to PPP loan expansion, defined pension contributions, excessive employee remuneration, and the repeal of the election to allocate interest expense on a worldwide basis. Under ASC 740, the effects of new legislation are recognized upon enactment. The enactment of the American Rescue Plan did not impact the Company’s income tax provision.

 

The components of income (loss) before the provision (benefit) for income taxes are as follows:

 

   December 31, 
   2022   2021 
Domestic Operations  $(2,683,143)  $1,334,057 
Foreign Operations   (900,772)   
-
 
   $(3,583,915)  $1,334,057 

 

The Company’s provision for income taxes is comprised of the following: 

 

   December 31, 
   2022   2021 
Current        
Federal  $-   $
-
 
State and local   15,685    9,951 
Foreign   
-
    
-
 
Total Current   15,685    9,951 
Deferred          
Federal   
-
    
-
 
State and local   
-
    
-
 
Foreign   (187,350)   
-
 
Change in Valuation Allowance   
-
    
-
 
Total Deferred   (187,350)   
-
 
Total (Benefit) Provision  $(171,665)  $9,951 

 

The Company’s effective tax rate differs from the U.S. federal statutory income tax rate of 21% for 2022 and 2021 as follows:

 

   2022   2021 
Income tax benefit (expense) at federal statutory rate   21.0%   21.0%
Permanent Differences   
-
    0.2%
State and local taxes   (0.7)%   (4.5)%
Valuation allowance   (7.6)%   (14.3)%
Deferred tax adjustment   
-
    2.6%
Share based compensation   (7.8)%   3.9%
PPP Loan Forgiveness   
-
    (8.0)%
Foreign Income Tax Rate Differential   0.5%   
-
 
Other   (0.6)%   (0.2)%
Effective tax rate   4.8%   0.7%

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:  

 

   December 31, 
   2022   2021 
Deferred Tax Assets:        
U.S. federal and state net operating losses  $3,436,822   $3,907,758 
Foreign net operating losses   103,375    
-
 
Share-based compensation   511,603    767,318 
Amortization of intangible assets   583,727    716,598 
Rent   36,413    56,251 
Capitalized IRC §174 costs   1,134,472    
-
 
Tax credits   62,969    62,969 
Other   257,473    266,986 
Subtotal   6,126,854    5,777,880 
Less Valuation Allowance:   (5,984,591)   (5,713,490)
Total Deferred Tax Assets   142,263    64,390 
Deferred Tax Liabilities:          
Amortization of intangible assets   (820,279)   
-
 
Property and equipment   (31,262)   (64,390)
Other   (7,625)   
-
 
Total Deferred Tax Liabilities   (859,166)   (64,390)
Net Deferred Tax Liability  $(716,903)  $
-
 

 

In assessing the Company’s ability to recover its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. A significant piece of objective negative evidence evaluated was cumulative loss incurred over the three-year period ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. Based on the weight of available evidence, the Company determined that its U.S. deferred tax assets are not realizable on a more-likely-than-not basis and has recorded a valuation allowance against its net U.S. deferred tax assets. The Company’s valuation allowance increased by $271,101 during 2022. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly.

 

As of December 31, 2022, the Company has U.S. federal net operating loss carryforwards of approximately $15.2 million, of which $12.5 million may be subject to an annual limitation under Section 382 of the Internal Revenue Code. Of the $15.2 million, approximately, $14.0 million are available to offset 100% of future taxable income but expire in varying amounts between 2031 to 2037, if not utilized. The remaining $1.2 million is available to offset 80% of future taxable income but may be carried forward indefinitely. The Company also has foreign net operating loss carryforwards of approximately $0.5 million, which begin to expire in 2042.

 

The Company applies the applicable authoritative guidance which prescribes a comprehensive model for the manner in which a company should recognize, measure, present and disclose in its financial statements all material uncertain tax positions that the Company has taken or expects to take on a tax return. As of December 31, 2022, the Company has no uncertain tax positions. As such, there are no uncertain tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve months from December 31, 2022.

 

The Company files a federal income tax return, income tax returns in various state tax jurisdictions, and income tax returns in Canada. The open tax years for the federal income tax return are 2019 through 2022. The state income tax returns have varying statutes of limitations. The open tax years relating to any of the Company’s federal and state net operating losses begin in 2009.