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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

Note 11 – Income Taxes

 

The components of the provision (benefit) for income taxes consists of the following for the years ended December 31, 2023 and 2022:

 

   2023     2022 
   Year Ended December 31, 
   2023    2022 
Current:          
Federal  $84,435   $563,821 
State   (540,240)   (266,248)
Total current  $(455,805)  $297,573 
Deferred:          
Federal   (7,228,611)   (3,945,090)
State   (2,068,509)   (961,468)
Change in valuation allowance   6,975,234    - 
Total deferred   (2,321,886)   (4,906,558)
Total income tax benefit  $(2,777,691)  $(4,608,985)

 

 

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

 

   2023   2022 
   Year Ended December 31, 
   2023   2022 
Federal income tax expense at statutory rate   21.0%   21.0%
State income tax expense, net of federal tax benefit   1.6%   4.8%
Permanent differences:          
- Foreign derived intangible income deduction   0.0%   1.4%
- Stock based compensation   -3.5%   -3.6%
- Contingent consideration remeasurement   0.6%   8.8%
- Goodwill impairment   0.0%   -17.1%
- Other permanent differences   -0.2%   -0.6%
Research and development credits   4.6%   11.1%
Change in uncertain tax positions   1.2%   -2.1%
Change in valuation allowance   -18.3%   0.0%
Other   0.3%   0.8%
Effective income tax rate   7.3%   24.5%

 

Net deferred tax liabilities consist of the following components as of December 31, 2023 and 2022:

 

   2023   2022 
   December 31, 
   2023   2022 
Deferred tax assets:          
Accrued liabilities  $58,158   $98,141 
Reserves and allowances   734,631    765,004 
Deferred compensation   620,551    566,076 
Section 174 costs   7,337,629    3,460,159 
Lease liability   742,131    85,899 
UNICAP   43,943    168,936 
Net operating loss carryforwards   4,040,601    - 
Research and development credits   1,688,255    - 
Total gross deferred tax assets   15,265,899    5,144,215 
Less valuation allowance   (6,938,829)   - 
Total deferred tax assets   8,327,070    5,144,215 
Deferred tax liabilities:          
Property and equipment, net   (672,416)   (609,261)
Intangibles, net   (6,552,255)   (6,608,914)
Prepaids   (329,768)   (156,053)
Right of use asset   (736,226)   (91,873)
Other comprehensive income   (36,405)   (96,101)
Other   -    - 
Total deferred tax liabilities   (8,327,070)   (7,562,202)
           
Net deferred tax liability  $-   $(2,417,987)

 

At December 31, 2023, the Company had federal net operating loss carryforwards of $16.3 million and federal research and development credit carryforwards of $1.4 million. At December 31, 2023, the Company had state net operating loss carryforwards of $16.9 million and $0.8 million of state research and development credit carryforwards. If unused, the state research credit carryforward will expire in 2037.

 

 

ASC Topic 740-10-05 requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. Our unrecognized tax benefit balances included $1,078,431 at December 31, 2023 and $1,469,577 at December 31, 2022 of tax positions that, if recognized, would impact our effective tax rate. The Company expects no material changes to the liability for unrecognized tax benefits in the next 12 months. Interest and penalties associated with uncertain tax positions are recorded as a component of income tax expense. A reconciliation of the beginning and ending amount of unrecognized benefits is as follows:

 

   December 31, 
   2023   2022 
Unrecognized tax benefits at the beginning of the year  $1,469,577   $1,067,853 
Gross increases - current year tax positions   273,569    1,045,590 
Gross increases - prior year tax positions   66,127    34,035 
Gross decreases - prior year tax positions   (730,842)   (677,901)
Unrecognized tax benefits at end of year  $1,078,431   $1,469,577 
           
Interest and penalties in year-end balance  $100,162   $34,035 

 

The Company is subject to taxation in the United States and other state jurisdictions. The tax years from December 31, 2020 through December 31, 2023 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which the Company is subject. The Company is not currently under examination by any taxing authority.