DEFERRED TAXES

12 Months Ended

Dec. 31, 2022

DEFERRED TAXES

DEFERRED TAXES

NOTE 16. DEFERRED TAXES

Income tax expense was $204,917 and nil for the years ended December 31, 2022 and 2021, respectively.

Significant components of the Company’s deferred tax assets and liabilities at December 31, 2022 and 2021 are shown below. A valuation allowance has been established as realization of such net deferred tax assets has not met the more likely-than-not threshold requirement. The Company has determined it is not more likely than not that its net deferred tax assets will be recovered. If the Company’s judgment changes and it is determined that the Company will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction to income tax expense.

As of December 31, 2022 and 2021, the Company had federal operating loss carryforwards of approximately $32.1 million and $36.0 million, respectively, and $41.1 and $41.4 million of state net operating loss carryforwards, respectively. Of the current net operating loss carryforwards, $24.1 million expire starting in 2033 through 2037, $3.1 million will expire starting in 2041, $3.7 million will expire in 2042, and $42.3 million do not expire. The Company has evaluated ownership changes pursuant to IRC Sections 382 and 383.  The annual Section 382 base limit is approximately $461 thousand. The additional deemed RBIG pursuant to Notice 2003-65 is approximately $2 million per year for a 5-year recognition period through December 31, 2026.

The components of net deferred tax assets and liabilities are as follows:

	December 31,
Deferred tax assets:	2022		2021
Net operating loss carryforwards	$	8,563,430	$	9,113,554
Equity-based instruments		366,007		1,991,225
Long-lived assets and other		(46,324)		192,201
Capital loss carryforward		97,868		93,218
Total deferred tax assets	$	8,980,981	$	11,390,198
Deferred tax liabilities:
Intangible assets	$	(566,853)	$	—
Total deferred tax liabilities		(566,853)		—
Valuation allowance		(8,414,128)		(11,390,198)
Net deferred tax asset	$	—	$	—

A reconciliation of our income tax provision and the amounts computed by applying statutory rates to income before income taxes is as follows:

	Year ended December 31,
	2022		2021
Income tax benefit at statutory rate	$	(1,946,731)	$	(1,862,570)
State income tax benefit, net of Federal benefit		—		(88,898)
280E Disallowance		1,834,141		946,481
Equity-based instruments		14,180		64,735
Fair market value adjustment/loss on extinguishment – derivative liabilities		65,231		312,590
Amortization of debt discount		376,895		176,128
Goodwill and intangible impairment		573,262
Other		107,608		706,270
Valuation allowance		(819,669)		(254,736)
	$	204,917	$	—