INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

12.     INCOME TAXES

The income tax provision on the statements of operations was comprised of the following for the years ended December 31:

	2022		2021
Current:
Federal	$	30,200	$	–
State		77,277		10,198
Current income tax provision		107,477		10,198
Deferred:
Federal		–		–
State		–		–
Deferred income tax provision		–		–
Income tax provision	$	107,477	$	10,198

For the years ended December 31, 2022 and 2021, the reconciliation of the federal statutory tax rate to the benefit rate for income taxes is as follows:

	2022			2021
Federal taxes at U.S statutory rate		21.0%			21.0%
Stock-based compensation		10.8			4.0
IRC Section 162(m) limitation		2.9			(7.4	)
Tax credits		(10.7	)		4.1
Other permanent differences		1.4			(0.3	)
State taxes		2.6			0.7
Change in state rate		(1.4	)		(1.8	)
Return-to-provision adjustments		(1.1	)		7.5
Change in valuation allowance		(6.1	)		(2.3	)
Change in carryovers and tax attributes		(9.9	)		(25.9	)
Effective tax rate		9.5%			(0.4	)%

Deferred tax assets and liabilities are comprised of the following at December 31:

	2022			2021
Deferred tax assets:
Net operating loss carryforward	$	3,704,696		$	4,082,474
Operating lease obligation		861,800			1,079,312
Stock-based compensation		784,212			621,460
Tax credits		460,271			526,549
Other		27,112			–
Other carryforwards		–			3,603
Accrued bonuses		–			285,336
Deferred tax assets, gross		5,838,091			6,598,734
Deferred tax liabilities:
Intangible assets		(196,871	)		(651,767	)
Fixed assets		(101,300	)		(111,255	)
Right-of-use assets		(852,961	)		(1,079,507	)
Deferred tax liabilities		(1,151,132	)		(1,842,529	)
Less valuation allowance		(4,686,959	)		(4,756,205	)
Deferred tax asset, net	$	–		$	–

As of December 31, 2022, the Company has gross Federal net operating loss carryforwards of approximately $17,527,306 and gross state net operating loss carryforwards of approximately $4,065,995. The Company's Federal net operating losses can be carried forward indefinitely. The carryforward periods for the Company's state net operating losses range from 15 to 20 years and begin to expire in 2035.

Pursuant to Sections 382 and 383 of the Internal Revenue Code (“IRC”), Federal and state tax laws impose significant restrictions on the utilization of net operating loss and other tax carryforwards in the event of a change in ownership of the Company. The Company has not yet completed a formal study, but does not expect IRC Sections 382 and 383 to significantly impact the future utilization of its net operating losses and other tax carryforwards.

Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. At December 31, 2020, management determined that its more-likely-than-not that the Company’s net deferred tax assets would not be realized in the near future and placed a full valuation allowance on the deferred tax assets. The Company continues to have a full valuation allowance in 2022. The Company's valuation allowance represents the amount of tax benefits that are likely to not be realized. The net change in the valuation allowance from December 31, 2021 to 2022 was $69,246. The net change in the valuation allowance from December 31, 2020 to 2021 was $63,230.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance as of December 31, 2020	$	–
Additions for current year		28,041
Additions for prior year		337,324
Subtractions for current year		–
Balance as of December 31, 2021		365,365
Additions for current year		24,270
Additions for prior year		–
Subtractions for current year		(10,281	)
Balance as of December 31, 2022	$	378,814

As of December 31, 2022 and 2021, the Company has no accrual for interest and penalties related to its unrecognized tax benefits. The balance of the unrecognized tax benefits as of December 31, 2022 are included in the deferred tax asset, net. The Company's effective tax rate would not be impacted if its uncertain tax benefits were recognized due to the Company's full valuation allowance. There are no positions for which it is reasonably possible that the uncertain tax benefit will significantly increase or decrease within twelve months. The Company files income tax returns in the United States and various state jurisdictions. The federal statute of limitation remains open for the 2018 tax year to present. The state statutes of limitation remain open for the 2020 tax year through present.