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INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 14 – INCOME TAXES

 

The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of December 31, 2022 and 2021 are presented below:

 

   2022   2021 
   For the Years Ended 
   December 31, 
   2022   2021 
Deferred tax assets:          
Net operating loss carryforwards  $10,614,916   $10,345,422 
Receivable allowance   5,057    18,885 
Stock-based compensation   14,825    — 
Intangible assets   313,546    662,357 
Property and equipment   —    — 
Deferred rent   —    12,935 
Other carryforwards   279    — 
Deferred revenues   204,473    177,191 
Leases   31,638    — 
Gross deferred tax asset   11,184,734    11,216,790 
           
Deferred tax liabilities:          
Property and equipment   (159,762)   (447,944)
Gross deferred tax liabilities   (159,762)   (447,944)
           
Net deferred tax assets   11,024,972    10,768,846 
           
Valuation allowance   (11,024,972)   (10,768,846)
           
Net deferred tax asset, net of valuation allowance  $—   $— 

 

The income tax expense for the periods shown consist of the following:

 

   2022   2021 
   For the Years Ended 
   December 31, 
   2022   2021 
Federal:          
Current  $—   $— 
Deferred   —    — 
State and local:          
Current   24,771    6,033 
Deferred   —    — 
Federal, State and local, tax expense   24,771    6,033 
Change in valuation allowance   —   —
           
Income tax expense  $24,771   $6,033 

 

 

MUSCLE MAKER, INC. & SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the periods shown, are as follows:

 

   2022   2021 
   For the Years Ended 
   December 31, 
   2022   2021 
           
Federal income tax benefit at statutory rate   21.0%   21.0%
State income tax benefit, net of federal impact   (0.5)%   7.0%
Permanent differences   (0.1)%   (0.0)%
PPP loan forgiveness   0.4%   — 
Return to provision adjustments   3.3%   — 
Deferred tax asset true up- State   (14.5)%   — 
Deferred tax asset true up- Federal   (6.8)%   — 
Other   —   (1.7)%
Change in valuation allowance   (3.3)%   (26.3)%
           
Effective income tax rate   (0.5)%   0.0%

 

The Company has filing obligations in what it considers its U.S. major tax jurisdictions as follows: Nevada, California, Connecticut, Florida, New Jersey, Texas, Virginia, New York State and New York City. The earliest year that the Company is subject to examination is the year ended December 31, 2015.

 

The Company has approximately $63.2 million of Federal and State Net operating loss (“NOLs”) available to offset future taxable income. The net operating loss carryforwards generated prior to 2018, if not utilized, will expire from 2035 to 2037 for federal and state purposes.

 

As of December 31, 2022 and 2021, the Company has determined that it is more likely than not that the Company will not recognize the future tax benefit of the loss carryforwards and has recognized a valuation allowance of $11,024,972 and $10,768,846, respectively. The valuation allowance increased by approximately $256,126.

 

Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, and similar state provisions. Generally, in addition to certain entity reorganizations, the limitation applies when one or more “5 percent stockholders” increase their ownership, in the aggregate, by more than 50 percentage points over a 36-month time period testing period or beginning the day after the most recent ownership change, if shorter.