Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.23.1
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Taxes [Abstract]  
Income Taxes NOTE 15 - INCOME TAXES

Income tax (benefit) expense from continuing operations consists of the following:

Year Ended December 31

2022

2021

Current year income taxes :

Federal

$

—

$

—

State

12,237

—

Income tax expense (benefit)

$

12,237

$

—

The Company’s Austin Taylor Communications, Ltd. unit operated in the United Kingdom (U.K.) and is subject to U.K. rather than U.S. income taxes. Austin Taylor had no activity in 2022 and 2021. At the end of 2022, Austin Taylor’s net operating loss carry-forward was $7,462,000. The Company remains uncertain whether it will be able to generate the future income needed to realize the tax benefit of the carry-forward. Accordingly, the Company has continued to maintain its deferred tax valuation allowance against any potential carry-forward benefit from Austin Taylor.

The provision for income taxes for continuing operations varied from the federal statutory tax rate as follows:

Year Ended December 31

2022

2021

Tax at U.S. statutory rate

21.0%

21.0%

State income taxes, net of federal benefit

(5.3)

—

Other nondeductible items

31.2

—

Change in valuation allowance

(44.1)

(21.0)

Other

(3.2)

—

Effective tax rate

(0.4)%

0.0%

Deferred tax assets and liabilities as of December 31 related to the following:

2022

2021

Deferred tax assets:

Allowance for doubtful accounts

$

47,353

$

—

Inventory

30,528

—

Accrued and prepaid expenses

184,418

—

Lease liability

1,055,975

—

Domestic net operating loss carry-forward

4,612,193

490,180

Other stock compensation

82,973

—

Intangible assets

—

—

Foreign net operating loss carry-forwards and credits

1,451,985

—

Federal and state credits

366,964

—

Other

786,904

1,776,156

Gross deferred tax assets

8,619,293

2,266,336

Valuation allowance

(6,560,649)

(2,266,336)

Net deferred tax assets

2,058,644

—

Deferred tax liabilities

Depreciation

(154,507)

—

Intangible assets

(853,130)

—

Lease right-of-use asset

(1,051,007)

—

Net deferred tax liability

(2,058,644)

—

Total net deferred tax asset

$

—

$

—

The Company assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2022. This objective evidence limits the ability to consider other subjective evidence such as the projections for future growth. On the basis of this evaluation, as of December 31, 2022, a valuation allowance of $6,560,649 has been recorded to reflect the portion of the deferred tax asset that is more likely to not be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company’s projections for growth.

At December 31, 2022, the Company has a federal net operating loss carryforward from 2015 through 2022 activity of approximately $16,975,459 that is available to offset future taxable income and begins to expire in 2035.

During 2015, the Company engaged in a research and development tax credit study for the tax years 2011 to 2014. As a result of this study, the Company claimed $1,554,447 of federal and $1,024,373 of state research and development credits. The Company amended prior year tax returns to claim these credits and offset prior year taxes paid. Credits not used to reduce taxes are available to be carried forward. At December 31, 2022, the Company has an estimated federal research and development credit carryforward of approximately $220,207 and a state research and development credit carryforward of approximately $387,202. The utilization of these credits may be limited under the provisions of Section 383 of the Internal Revenue Code and similar state statutes. Section 383 governs the utilization of tax attribute carryforwards such as the research and development credit in the event of a change in control of the Company, such as that which occurred as of March 28, 2022.

The Company assesses uncertain tax positions in accordance with ASC 740. Under this method, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from these uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent

likelihood of being realized upon ultimate resolution. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense.

Changes in the Company’s uncertain tax positions are summarized as follows:

2022

2021

Uncertain tax positions – January 1

$

—

$

—

Opening balance sheet

112,850

Gross increases - current period tax positions

(37,503)

—

Uncertain tax positions – December 31, 2022

$

75,347

$

—

Included in the balance of uncertain tax positions at December 31, 2022 are $75,347 of tax benefits that if recognized would affect the tax rate. The Company’s unrecognized tax benefits will be reduced by $0 in the next twelve months due to statute of limitations expirations. There are no other expected significant changes in the Company’s uncertain tax positions in the next twelve months. The Company’s income tax liability accounts included accruals for interest and penalties of $0 at December 31, 2022. The Company’s 2022 income tax expense decreased by $0 due to net decreases for accrued interest and penalties.