INCOME TAXES

12 Months Ended

Dec. 31, 2023

INCOME TAXES [Abstract]

INCOME TAXES

Note 16
INCOME TAXES

The Company accounts for income taxes under ASC 740. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

For financial reporting purposes, the Company’s consolidated income from continuing operations before income taxes for the U.S. and foreign entities, in the aggregate, is as follows:

	For the Years Ended December 31,
	2023		2022
United States	$	1,819,170	$	(19,168,010	)
Foreign		—		—
Total loss before provision for income taxes	$	1,819,170	$	(19,168,010	)

The income tax expense for continuing operations consisted of the following for the years ending December 31, 2023 and December 31, 2022:

	For the Years Ended December 31,
	2023		2022
Current:
Federal	$	7,348	$	—
State		78,392		23,980
Foreign		—		—
	$	85,740	$	23,980
Deferred:
Federal		—		—
State		—		—
Foreign		—		—
		—		—
Total	$	85,740	$	23,980

The reconciliation between the Company’s effective tax rate on income from continuing operations and statutory tax rate for the years ended December 31, 2023 and 2022 is as follows:

	For the Years Ended December 31,
	2023		2022
Income tax expense (benefit) at federal statutory rate		21.0%		21.0%
Nondeductible/nontaxable items		(0.63)%		0.34%
Stock-based compensation		260.39%		—%
Gain on sale of operations		—%		0.89%
State taxes		12.90%		7.49%
Rate change		(4.46)%		(0.87)%
True-up and other		(38.24)%		(0.44)%
Valuation allowance		(246.77)%		(28.54)%
Income tax expense		4.19%		(0.13)%

Effective for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses incurred that are considered incidental to research and experimentation (“R&E”) activities under IRC Section 174. While taxpayers historically had the option of deducting these expenses under IRC Section 174, the December 2017 Tax Cuts and Jobs Act mandates capitalization and amortization of R&E expenses for tax years beginning after December 31, 2021. Expenses incurred in connection with R&E activities in the U.S. must be amortized over a 5-year period if incurred, and R&E expenses incurred outside the U.S. must be amortized over a 15-year period. R&E activities are broader in scope than qualified research activities that are considered under IRC Section 41 (relating to the research tax credit).

For the year ended December 31, 2023, the Company performed an analysis based on available guidance and determined that it will increase taxable income. The Company will continue to monitor this issue for future developments and its impact on taxable income.

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of net deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

The following items comprise the Company’s net deferred tax assets and liabilities from continuing operations as of December 31, 2023 and December 31, 2022:

	As of December 31,
	2023			2022
Deferred tax assets
Allowance for credit losses	$	—		$	21,421
Reserves		—			49,827
Accrued expenses		237,689			357,441
Lease liability		2,910			9,007
Stock compensation		2,028,170			5,514,035
Depreciation		3,380			10,813
Amortization		56,882			65,021
Capitalized Sec. 174 expenses		1,138,021			914,390
Net operating loss carry forwards		5,140,001			10,517,739
Deferred income tax assets	$	8,607,053		$	17,459,694
Valuation allowance		(8,119,492	)		(17,332,381	)
Total net deferred income tax assets	$	487,561		$	127,313
Prepaid expenses		(29,302	)		(43,741	)
Unrealized FX gain/ loss		(1,951	)		(74,565	)
Installment sale receivable		(453,398	)		—
Right-of-use asset		(2,910	)		(9,007	)
Deferred income tax liability	$	(487,561	)	$	(127,313	)
Net deferred taxes	$	—		$	—

As of the year ended December 31, 2023, the Company has federal and state net operating loss carryforwards of approximately $19,744,461 and $24,522,199, respectively. Federal net operating loss carryforwards in the amount of approximately $19,744,461 have an indefinite life. Federal NOL carryforwards generated after tax year 2021 are subject to an 80% limitation on taxable income, do not expire and will carryforward indefinitely.

State net operating loss carryforwards in the amount of $9,131,824 begin expiring in 2036 and approximately $15,390,375 have an indefinite life.

The utilization of the Company’s net operating losses may be subject to a U.S. federal limitation due to the “change in ownership provisions” under Section 382 of the Internal Revenue Code and other similar limitations in various state jurisdictions. Such limitations may result in a reduction of the amount of net operating loss carryforwards in future years and possibly the expiration of certain net operating loss carryforwards before their utilization.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company cannot rely on a history of earnings. Based on this assessment, management has established a full valuation allowance against all of the deferred tax assets because it is more likely than not that all of the deferred tax assets will not be realized.

As of December 31, 2023, deferred tax assets were offset by deferred tax liabilities and a valuation allowance on any remaining balance. A valuation allowance of $8,119,492 has been recorded to measure only the portion of the deferred tax asset that more likely than not will be realized. The valuation allowance changed by $9,212,889 in the year. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income are improved 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 our projections for growth in the relevant jurisdictions.

As required by the uncertain tax position guidance in ASC 740, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applied the uncertain tax position guidance in ASC No. 740, Accounting for Income to all tax positions for which the statute of limitations remained open. Any estimates of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions. Any interest and penalties related to uncertain tax positions would be included as part of the income tax provision.

The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of or changes in tax laws, regulations and interpretations thereof as well as other factors.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examinations by federal, and state and local jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from 2019 to the present in the U.S. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state and local tax authorities to the extent utilized in a future period.

The Company is also subject to certain non-income taxes such as value added taxes, sales taxes, and property taxes. The Company has taken certain positions that management feels, although not free from doubt, should not result in a successful challenge by certain tax authorities.