INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

10. INCOME TAXES

The Company had no income tax expense for the year ended December 31, 2022 and the nine months ended December 31, 2021 due to its history of operating losses. The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate:

	Year Ended December 31, 2022			Nine Months Ended December 31, 2021
Federal statutory tax rate		(21	)%		(21	)%
State tax rate, net of federal benefit		(7	)%		(7	)%
Total federal and state tax rate		(28	)%		(28	)%
Valuation allowance		28	%		28	%
Effective tax rate		-	%		-	%

Deferred tax assets and liabilities consist of the following:

	December 31, 2022			December 31, 2021
Net deferred tax assets:
Net operating loss carryforwards	$	6,690,000		$	5,938,000
Stock-based compensation		3,514,000			3,284,000
Goodwill		202,000			-
Research credits		86,000			64,000
Operating lease liability		-			-
Gross deferred tax assets		10,492,000			9,286,000
Less: valuation allowance		(9,174,000	)		(8,178,000	)
Total deferred tax assets		1,318,000			1,108,000
Deferred tax liabilities:
Derivative income		1,108,000			1,108,000
Fixed assets		210,000			-
Operating lease right-of-use asset		-			-
Total deferred tax liabilities		1,318,000			1,108,000
Net deferred income tax assets (liabilities)	$	-		$	-

The provisions of ASC Topic 740, Accounting for Income Taxes, require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. For the year ended December 31, 2022 and the nine months ended December 31, 2021, based on all available objective evidence, including the existence of cumulative losses, the Company determined that it was more likely than not that the net deferred tax assets were not fully realizable. Accordingly, the Company established a full valuation allowance against its net deferred tax assets. The Company intends to maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. During the year ended December 31, 2022 and the nine months ended December 31, 2021, the valuation allowance increased by $996,000 and $491,000, respectively. 

At December 31, 2022 and December 31, 2021, the Company had available Federal and state net operating loss carryforwards (“NOLs”) to reduce future taxable income. For Federal purposes, the amounts available were approximately $24.0 million and $22.8 million, respectively. For state purposes, approximately $23.4 million and $22.9 million was available at December 31, 2022 and December 31, 2021, respectively. The Federal carryforwards expire on various dates through 2042 and the state carryforwards expire through 2039. Due to restrictions imposed by Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with loss carryforwards, the utilization of the Company’s NOLs may be limited as a result of changes in stock ownership. NOLs incurred subsequent to the latest change in control are not subject to the limitation. 

The Company’s operations are based in California and Ohio and it is subject to Federal, California and Ohio state income tax. Tax years after 2016 are open to examination by United States and state tax authorities.

The Company adopted the provisions of ASC 740, which requires companies to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any tax benefit can be recorded in the financial statements. ASC 740 also provides guidance on the recognition, measurement, classification and interest and penalties related to uncertain tax positions. As of December 31, 2022 and December 31, 2021, no liability for unrecognized tax benefits was required to be recorded or disclosed.