Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.1
Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Taxes [Abstract]  
INCOME TAXES

NOTE 11 - INCOME TAXES

 

The Company is subject to federal and state/provincial income taxes in the United States, Canada, and the United Kingdom and each legal entity files on a non- consolidated basis. The benefit of the pre-reorganization net operating losses of 180 LP were passed through to its owners.

 

The losses before income taxes consist of the following domestic and international components:

 

    For the Years Ended  
    December 31,  
    2023     2022  
Domestic   $ (20,025,289 )   $ (37,727,021 )
International     (2,259,237 )     (1,941,987 )
    $ (22,284,526 )   $ (39,669,008 )

 

The provision for income taxes consists of the following benefits:

 

    For the Years Ended  
    December 31,  
    2023     2022  
Deferred tax benefits:            
Domestic:            
Federal   $ 4,004,891     $ 4,057,936  
State     1,399,496       1,343,123  
International     591,583       353,038  
      5,995,970       5,754,097  
Change in valuation allowance     (3,646,556 )     (4,811,348 )
Net income tax benefit   $ 2,349,414     $ 942,749  

 

Certain deferred tax assets are denominated in currencies other than the US dollar and are subject to foreign currency translation adjustments. The provision for income taxes differs from the United States Federal statutory rate as follows:

 

    For the Years Ended  
    December 31,  
    2023     2022  
US Federal statutory rate     21.0 %     21.0 %
Difference between domestic and foreign federal rates     (0.2 )%     (0.1 )%
State and provincial taxes, net of federal benefits     6.3 %     6.6 %
Permanent differences:                
Goodwill impairment    
-
       (23.7 )%
Change in the fair value of derivatives and accrued issuable equity     0.4 %     10.7 %
Other     (0.5 )%    
-
  
Change in valuation allowance     (16.4 )%     (12.1 )%
Effective income tax rate     10.6 %     2.4 %

 

Deferred tax assets and liabilities consist of the following:

 

    December 31,  
    2023     2022  
Deferred tax assets:            
Net operating loss carryforwards   $ 16,460,534     $ 13,399,384  
Amortization     318,546       165,476  
Accrued compensation not currently deductible     75,638       343,787  
Stock compensation     2,126,581       1,588,866  
Accrued interest     150,502       150,502  
Reserve for uncollectible notes receivable     162,770      
-
  
Organizational costs deferred for tax purposes     8,125       8,125  
      19,302,696       15,656,140  
                 
Deferred tax liabilities:                
Difference between book and tax basis related to:                
Technology license     (351,791 )     (368,587 )
Acquired in-process research and development    
-
       (2,332,618 )
Other     (639,726 )     (555,880 )
      (991,517 )     (3,257,085 )
                 
Total of deferred tax assets and liabilities     18,311,179       12,399,055  
Valuation allowance     (18,662,970 )     (15,016,414 )
Total of deferred tax assets and liabilities, net   $ (351,791 )   $ (2,617,359 )

 

The change in the valuation reserve for deferred tax assets consists of the following:

 

    For the Years Ended  
    December 31,  
    2023     2022  
Beginning of period   $ (15,016,414 )   $ (9,072,118 )
Change in valuation pursuant to the tax provision     (3,732,408 )     (4,811,348 )
True-up to a prior year’s tax return     85,851       (1,132,948 )
End of period   $ (18,662,971 )   $ (15,016,414 )

 

As of December 31, 2023, the Company had net operating loss (“NOL”) carryforwards that may be available to offset future taxable income in various jurisdictions as follows:

 

  ● Approximately $41,870,000 of domestic federal and state NOLs. The federal NOLs have no expiration date and are subject to 80% of taxable income; the state NOLs will begin to expire in 2039;

 

● Approximately $8,589,000 each of Canadian federal and provincial NOLs. Those NOLs will begin to expire in 2038; and

 

● Approximately $12,759,000 of United Kingdom federal NOLs. Those NOLs have no expiration date.

 

The utilization of the domestic NOLs to offset future taxable income may be subject to annual limitations under Section 382 of the Internal Revenue Code and similar state statutes as a result of ownership changes.

 

The Company has assessed the likelihood that deferred tax assets will be realized in accordance with the provisions of ASC 740. ASC 740 requires that such review considers all available positive and negative evidence, including the scheduled reversal of deferred tax assets, projected future taxable income, and tax planning strategies. ASC 740 requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. After the performance of such reviews as of December 31, 2023 and 2022, management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation allowance. The Company recorded increases in the valuation allowance of $3,646,557 and $5,944,246 in connection with the tax provisions for the years ended December 31, 2023 and 2022, respectively.

 

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2023 and 2022. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date.

 

No tax audits were commenced or were in process during the years ended December 31, 2023 and 2022, nor were any tax related interest or penalties incurred during those periods. The Company’s tax returns filed in the United States, Canada, and the United Kingdom since inception remain subject to examination.