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

13. Income Taxes

 

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

 

   2023   2022 
   December 31, 
   2023   2022 
Current          
Federal  $—   $— 
Foreign   17,308    — 
State   —    — 
Total current   17,308    — 
Deferred          
Federal          
Foreign   —    — 
State   —    — 
Total deferred   —    — 
Total provision for income taxes  $17,308    — 

 

A reconciliation of income tax computed using the U.S. federal statutory tax rate compared to that reflected in operations for the years ending December 31, 2023 and December 31, 2022 consists of:

 

   2023   2022 
   Amount   Percent   Amount   Percent 
Income taxes using U.S. statutory rate  $(2,401,761)   21.00%  $(2,205,649)   21.00%
Debt fair value adjustment   762,321    (6.67)%   262,500    (2.50)%
State taxes, net of federal benefit   (538,268)   4.71%   (602,211)   5.73%
Research and development tax credit   (356,237)   3.11%   (433,674)   4.13%
Change in valuation allowance   2,502,918    (21.88)%   2,889,667    (27.51)%
Other, net   48,335    (0.42)%   89,367    (0.85)%
Income tax expenses (benefit)  $17,308   $(0.15)%  $—    

—

%

 

 

AZITRA, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

For the Years Ended December 31, 2023 and 2022

 

13. Income Taxes (continued)

 

Deferred income taxes are provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and those for income tax reporting purposes. Deferred income tax assets / (liabilities) as of December 31, 2023 and 2022 are as follows:

 

   2023   2022 
   December 31, 
   2023   2022 
Deferred tax assets:          
Net operating loss carryforwards  $8,755,690   $7,870,665 
Tax credits   2,155,118    1,729,421 
Depreciation and amortization   2,372,070    1,189,975 
Accrued expenses   89,462    81,876 
Other   30,572    28,057 
Total deferred tax assets  $13,402,912    10,899,994 
           
Deferred tax liabilities:          
Depreciation and amortization   —    — 
Total deferred tax liabilities   —    — 
Valuation allowance   (13,402,912)   (10,899,994)
Net deferred tax assets  $—   $— 

 

The Company has federal net operating loss carryforwards of approximately $32,529,000 and $29,192,000 for the tax years ending December 31, 2023 and 2022, respectively, of which $1,285,000 will expire in tax years 2036 through 2037 and approximately $31,244,000 which does not expire. The Company has state net operating loss carryforwards of approximately $32,484,000 and $29,374,000 for the tax years ending December 31, 2023 and 2022, respectively, which will expire in tax years 2037 through 2043.

 

The Company has federal research tax credits of approximately $1,524,000 and $1,235,000 for the tax years ending December 31, 2023 and 2022, respectively, which expire in tax years 2039 through 2043. The Company has state research tax credits of approximately $466,000 and $350,000 for the tax years ending December 31, 2023 and 2022, respectively, of which $312,000 will expire in tax year 2036 through 2038 and the remainder can be carried forward indefinitely. The Company has Canadian research tax credits of approximately $263,000 and $218,000 for the tax years ending December 31, 2023 and 2022, respectively, which expire in tax years 2039 through 2043.

 

The U.S. Internal Revenue Code Section 382 imposes an annual limit on the ability of a corporation that undergoes a greater than 50% ownership change to use its net operating loss carry forwards to reduce its tax liability. If in the future the Company undergoes an ownership change exceeding the 50% limitation threshold imposed by Section 382, the Company’s net operating loss carryforwards may be significantly limited as to the amount of use in a particular year. In addition, all or a portion of the Company’s net operating loss carryforwards incurred before 2018, may expire unutilized.

 

 

AZITRA, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

For the Years Ended December 31, 2023 and 2022

 

13. Income Taxes (continued)

 

The realization of deferred tax assets is dependent upon the Company’s ability to generate future taxable income during the periods in which the temporary differences become deductible. Based on the Company’s recent earnings history and projected future U.S. earnings, management believes that it is more likely than not that its federal and state deferred tax assets will not be fully realized in the foreseeable future. As a result of this assessment, management believes that a full valuation allowance against its net federal and state deferred tax assets is required.

 

The Company applies the provisions of ASC 740-10 to account for uncertain tax positions. ASC 740-10 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely that not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company has determined that it has no significant uncertain tax positions requiring recognition and measurement under ASC 740-10.

 

The Company is subject to U.S. federal income tax, Connecticut state income tax and Canada branch tax. The Company has not been audited by the IRS, state, or foreign tax authorities in connection with income taxes. The Company’s tax years remain open to examination for all federal and state tax matters until its net operating loss carryforwards are utilized and the applicable statute of limitations have expired.

 

The Company will recognize interest and penalties related to unrecognized tax benefits, if applicable, as a component of income tax expense.