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

NOTE 13 – INCOME TAXES

 

The Company accounts for income taxes in accordance with ASC Topic No. 740, Income Taxes. This standard requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carry forwards.

 

As discussed in Notes 4 and 5, the Company recognized net deferred tax liabilities associated with the Precision Healing merger and the Scendia acquisition. As of December 31, 2022, prior to consideration of these deferred tax liabilities, the Company had net deferred tax assets in excess of the deferred tax liabilities being recognized, however, a 100% valuation allowance had previously been provided against the Company’s net deferred tax assets. As a result of the recording of the net deferred tax liabilities related to the Precision Healing merger and Scendia acquisition, the Company reviewed the valuation allowance and determined that it should be reduced by the amount of the deferred tax liabilities that were recognized. This resulted in a year-to-date income tax benefit of $5.8 million.

 

After applying the provisions of Section 382 of the Internal Revenue Code, the unexpired net operating loss (“NOL”) carryforward at December 31, 2022 was approximately $32.5 million, of which, approximately $5.4 million, generated in 2017 and prior, will expire between 2023 and 2037. Under the Tax Cuts and Jobs Act, the NOL generated from 2018 through 2022, of approximately $27.1 million, will have an indefinite carryforward period but can generally only be used to offset 80% of taxable income in any particular year. The Company may be subject to certain limitations in its annual utilization of NOL carry forwards to off-set future taxable income pursuant to Section 382 of the Internal Revenue Code, which could result in NOLs expiring unused.

 

The components of the deferred income tax assets and liabilities consisted of the following:

 

   As of December 31, 
   2022   2021 
Deferred tax assets          
Net operating loss carry forwards  $

6,818,547

   $

4,352,201

 
Inventory reserves   43,678    70,221 
Bad debt and other reserves   92,286    

561,944

 
Accrued expenses   

-

    35,579 
Research and development expenses   707,076    - 
Share-based compensation expense   232,250    - 
Other temporary differences   26,102    1,134 
Total deferred tax assets   7,919,939    5,021,079 
Deferred tax liabilities          
Depreciation and amortization   (5,919,626)   (17,001)
Accrued expenses   

(26,903

)   -
Valuation allowance   (1,973,410)   (5,004,078)
Net deferred tax asset  $-   $- 

 

A 100% valuation allowance has been provided for all deferred tax assets, as the ability of the Company to generate sufficient taxable income in the future is uncertain.

 

 

Reconciliations of the expected federal income tax benefit based on the statutory income tax rate of 21% to the actual benefit for the years ended December 31, 2022 and 2021 are listed below.

 

   For the Year Ended December 31, 
   2022   2021 
Expected federal income tax benefit  $2,851,758   $1,663,601 
NOL carryover adjusted for expiration   46,936   (29,730)
Equity method investment loss   (79,723)   (129,555)
Meals and entertainment   (4,843)   (7,439)
Share-based compensation   (249,516)   120,924
Research and development expenses   

(707,076

)   -
Other temporary differences   329,829   (46,683)
Change in valuation allowance   3,657,431   (1,571,118)
Income tax expense (benefit)  $5,844,796   $- 

 

All tax years starting with 2019 are open for examination.