Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 8 – Income Taxes

The following summarizes the Company’s income tax provision (benefit):

	For the Years Ended December 31,
	2021			2020
Federal:
Current	$	-		$	-
Deferred		(2,700,372	)		(1,828,584	)
State and local:
Current		-			-
Deferred		(900,124	)		(609,528	)
		(3,600,496	)		(2,438,112	)
Change in valuation allowance		3,600,496			2,438,112
Income tax provision (benefit)	$	-		$	-

The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective tax rate for the year’s ended December 31, 2021 and 2020 is as follows:

	For the Years Ended December 31,
	2021			2020
Tax benefit at federal statutory rate		(21.0)	%		(21.0)	%
State taxes, net of federal benefit		(7.0)	%		(7.0)	%
Nondeductible compensation		6.2	%		-
Permanent differences		(0.5	)%		2.0	%
True up adjustments		0.5	%		(0.7)	%
Change in valuation allowance		21.8	%		26.7	%
Effective income tax rate		0.0	%		0.0	%

ENVVENO MEDICAL CORPORATION

f/k/a HANCOCK JAFFE LABORATORIES, INC.

NOTES TO FINANCIAL STATEMENTS

Significant components of the Company’s deferred tax assets at December 31, 2021 and 2020 are as follows:

	December 31,
	2021			2020
Deferred tax assets:
Net operating loss carryforwards	$	12,881,729		$	9,811,086
Research and development credit carryforwards		185,680			185,680
Intangible assets		276,184			305,027
Operating lease liability		78,194			159,025
Stock-based compensation		923,540			311,304
Impairment loss		136,612			136,612
Total gross deferred tax assets		14,481,939			10,908,734
Deferred tax liabilities
Operating lease asset		(70,994	)		(151,193	)
Property and equipment		(102,107	)		(49,199	)
Total net deferred tax assets		14,308,838			10,708,342
Less: valuation allowance		(14,308,838	)		(10,708,342	)
Total	$	-		$	-

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s history of operating losses, management believes that recognition of the deferred tax assets arising from the above listed future tax benefits is currently not more likely than not to be realized and, accordingly, has provided a full valuation allowance. The valuation allowance increased by $3.6 million and $2.4 million during the years ended December 31, 2021 and 2020, respectively.

Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss, or NOL, carryforwards and other pre-change tax attributes to offset its post-change income taxes may be limited. In accordance with Section 382 of the Internal Revenue Code, the usage of the Company’s NOL carry forwards are subject to annual limitations due to a greater than 50% ownership change in 2021.

At December 31, 2021 and 2020, the Company had post-ownership change net operating loss carryforwards for federal income tax purposes of approximately $45.7 million and $35.0 million, respectively. Pre-2018 federal NOLs of approximately $12.0 million may be carried forward for twenty years and begin to expire in 2029. Based on the 2021 ownership change, the Company expects $7.6 million of its pre-2018 federal NOLs to expire unused. Under the Tax Act, post-2017 federal NOLs in the aggregate amount of $33.0 million can be carried forward indefinitely and the annual limit of deduction equals 80% of taxable income. However, to the extent the Company utilizes its NOL carryforwards in the future, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities of the future period tax return in which the attribute is utilized. The Company also has federal research and development tax credit carryforwards of approximately $0.2 million which begin to expire in 2027.

As of December 31, 2021 and 2020, the Company had net operating loss carryforwards for state income tax purposes of approximately $45.7 million and $35.0 million, respectively, which can be carried forward for twenty years and begin to expire in 2028.

The Company files income tax returns in the U.S. federal jurisdiction as well as California and local jurisdictions and is subject to examination by those taxing authorities. The Company’s federal income taxes for the years beginning in 2018 remain subject to examination. The Company’s state and local income tax returns for the years beginning in 2017 remain subject to examination. No tax audits were initiated during 2021 or 2020.

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements as of December 31, 2021 and 2020. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date. The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the statements of operations.

On March 27, 2020, the CARES Act was enacted in response to COVID-19 pandemic. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The CARES Act made various tax law changes including among other things (i) increasing the limitation under Section 163(j) of the Internal Revenue Code of 1986, as amended (the “IRC”) for 2019 and 2020 to permit additional expensing of interest (ii) enacting a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k), (iii) making modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes and (iv) enhancing the recoverability of alternative minimum tax credits. The Company has evaluated the impact CARES Act on its provision for income taxes and determined there is not a significant impact to income taxes because of the CARES Act.

On June 29, 2020, California’s Governor Newsom signed AB85 suspending California net operating loss (“NOL”) utilization and imposing a cap on the amount of business incentives tax credits (R&D credit) for tax years 2020-2022. Given the tax loss in 2020 and an expected tax loss for 2021, the suspension will not have an impact on the Company’s NOL in California. On February 9, 2022, Mr. Newsom signed SB113 which removes the restrictions in AB85 effective for the 2022 tax year.

ENVVENO MEDICAL CORPORATION

f/k/a HANCOCK JAFFE LABORATORIES, INC.

NOTES TO FINANCIAL STATEMENTS