Note 7 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 7 – INCOME TAXES

The provision for income taxes consists of an amount for taxes currently payable and a provision for tax consequences deferred to future periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The Company incurred zero income tax expense at December 31, 2022 due to current year losses, compared to an income tax benefit of $661,658 in our consolidated statement of net loss for the year ended December 31, 2021 related to the release of valuation allowance as a result of the zPREDICTA business combination. However, due to the cumulative operating losses, the Company determined that a 100% valuation allowance for the net deferred tax assets at December 31st is appropriate.

Actual income tax benefit differs from statutory federal income tax benefit as follows:

	Year Ended December 31,
	2022			2021
Statutory federal income tax benefit	$	5,404,903		$	4,266,955
State tax benefit, net of federal taxes		856,735			793,282
Foreign tax benefit		-			-
Foreign operations tax rate differential		-			-
State rate adjustment		(7,795,184	)		5,153
Nondeductible/nontaxable items		(7,709	)		(260,768	)
Goodwill impairment		(1,654,212	)		(605,420	)
NOL adjustments		(1,149,895	)		(612,588	)
Other		89,162			150,083
Valuation allowance increase		4,256,200			(3,075,039	)
Total income tax benefit	$	-		$	(661,658	)

Deferred taxes consist of the following:

	December 31, 2022			December 31, 2021
Deferred tax assets:
Noncurrent:
Inventory	$	-		$	-
Compensation accruals		150,168			58,829
Accruals and reserves		254,213			50,537
Deferred revenue		51,198			26,198
Charitable contribution carryover		1,766			1,095
Derivatives		3,192			27,859
Intangibles		1,827,736			700,876
Right of use asset		6,925			18,543
NSQO compensation		1,625,108			1,602,429
NOL and credits		77,042,831			82,814,111
Total deferred tax assets		80,963,137			85,300,477
Deferred tax liabilities:
Noncurrent:
Depreciation		(39,213	)		(120,353	)
Total deferred tax liabilities		(39,213	)		(120,353	)
Net deferred tax assets		80,923,924			85,180,124
Less: valuation allowance		(80,923,924	)		(85,180,124	)
Total	$	-		$	-

The Company has determined, based upon its history, that it is probable that future taxable income may be insufficient to fully realize the benefits of the net operating loss (“NOL”) carryforwards and other deferred tax assets. As such, the Company has determined that a full valuation allowance is warranted. Future events and changes in circumstances could cause this valuation allowance to change.

The Company believes it has experienced multiple ownership changes in prior years including in 2021 as defined by Section 382 of the Code. The Company has not yet performed an analysis of the annual net operating loss carryforwards and limitations that are available to be used against taxable income. As a result, the ability to utilize the Company’s NOLs is limited. In addition, the current NOL carryforwards might be further limited by future issuances of our common stock. The general limitation rules allow the Company to utilize its NOLs subject to an annual limitation that is determined by multiplying the federal long-term tax-exempt rate by the Company’s value immediately before the ownership change.

At December 31, 2022, the Company had $316,548,085 of gross NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in 2023, subject to the Section 382 limitation described above. The federal NOL’s of $254,897,407 expire beginning in 2023 if unused and $60,829,929 will carryforward indefinitely. The Company also had $232,097,127 of gross NOLs to reduce future state taxable income at December 31, 2022. The state NOL’s will expire beginning in 2022 if unused. The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At December 31, 2022, the federal, and state valuation allowances were $66,733,005 and $14,190,055, respectively.

At December 31, 2021, the Company had $308,990,822 of gross NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in 2022, subject to the Section 382 limitation described above. The federal NOL’s of $259,490,005 expire beginning in 2023 if unused and $49,500,817 will carryforward indefinitely. The Company also had $227,277,399 of gross NOLs to reduce future state taxable income at December 31, 2021. The state NOL’s will expire beginning in 2022 if unused. The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At December 31, 2021, the federal and state valuation allowances were $62,034,750 and $23,145,374 respectively.

The decrease in state valuation allowance from prior year is due to revaluation of state NOL’s from favorable future state tax rate changes to apply to taxable income in the years in which the NOL’s are expected to be utilized.

Tax years subsequent to 2002 remain open to examination by federal and state tax authorities due to unexpired net operating loss carryforwards.

The Company reviews income tax positions expected to be taken in income tax returns to determine if there are any income tax uncertainties. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by taxing authorities, based on technical merits of the positions. The Company has identified no income tax uncertainties.

The Company recognizes interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense. At December 31, 2022 and 2021, the Company recorded no accrued interest or penalties related to uncertain tax positions.