Annual report pursuant to Section 13 and 15(d)

INCOME TAX

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INCOME TAX
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAX INCOME TAX
Income tax expense attributable to pretax loss from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 21% to pretax loss from continuing operations as a result of the following:
For the Years ended December 31,
2023 2022
Computed “expected” tax benefit (3,074,000) 21.00  % (2,722,000) 21.00  %
Increase (reduction) in income taxes resulting from):
State tax, net of federal benefit —  —  % (1,024,900) 7.95  %
Permanent items (80,500) 0.55  % —  —  %
Stock-based compensation 221,200  (1.51) %
Research and development credits (241,800) 1.65  % (224,100) 1.70  %
Other 130,600  (0.89) % (2,000) —  %
Change in valuation allowance 3,044,500  (20.80) % 3,973,000  (30.65) %
Total —  —  % —  —  %

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below as of December 31:

2023 2022
Deferred tax assets (liabilities):
Net operating loss carryforwards
 $ 5,799,000  $ 4,115,800 
Research and development credits
 619,000  377,200 
Stock based compensation 647,000  349,900 
Sec. 174 2,027,200  1,032,700 
Other
 —  172,100 
Total deferred tax assets
 9,092,200  6,047,700 
Valuation Allowance
 (9,092,200) (6,047,700)
Net Deferred Tax Assets
 —  — 

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by approximately $3,044,500 for the period ended December 31, 2023.

As of December 31, 2023, the Company had federal and state net operating loss (“NOL”) carryforwards of approximately $21,496,500 and $18,394,200, respectively. The federal NOL carryforwards consist of $2,405,400 generated prior to 2018 which will begin to expire in 2035, however, are able to offset 100% of taxable income and $19,091,000 generated after December 31, 2017 that will carryforward indefinitely but will be subject to 80% taxable income limitation beginning tax years after December 31, 2021 as provided by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act (PL 116-136).

The Company has federal R&D credit carryforwards of approximately $617,000 which will begin to expire in 2041 and state R&D credit carryforwards of approximately $338,400 which do not expire.

The utilization of NOLs and tax credit carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that have occurred previously or may occur in the future. Under Sections 382 and 383 of the Internal Revenue Code (“IRC”) a corporation that undergoes an ownership change may be subject to limitations on its
ability to utilize its pre-change NOLs and other tax attributes otherwise available to offset future taxable income and/or tax liability. An ownership change is defined as a cumulative change of 50% or more in the ownership positions of certain stockholders during a rolling three-year period. The Company has not completed a formal study to determine if any ownership changes within the meaning of IRC Section 382 and 383 have occurred. If an ownership change has occurred, the Company’s ability to use its NOLs or tax credit carryforwards may be restricted, which could require the Company to pay federal or state income taxes earlier than would be required if such limitations were not in effect.

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 US must be amortized over a 5-year period if incurred, and R&E expenses incurred outside the US must be amortized over a 15-year period. R&E activities are broader in scope than qualified research activities considered under IRC Section 41 (relating to the research tax credit). For the years ended December 31, 2023 and December 31, 2022, the Company performed an analysis based on available guidance and determined that it will continue to be in a loss position even after the required capitalization and amortization of its R&E expenses. The Company will continue to monitor this issue for future developments, but it does not expect R&E capitalization and amortization to require it to pay cash taxes now or in the near future.

The total amount of unrecognized tax benefits as of December 31, 2023 is approximately $286,600, which relates to federal and state R&D credits. If recognized none of the unrecognized tax benefits would affect the effective tax rate.

The Company's policy is to account for interest and penalties as income tax expense. As of the December 31, 2023 the Company had no interest related to unrecognized tax benefits. No amounts of penalties related to unrecognized tax benefits were recognized in the provision for income taxes. We do not anticipate any significant change within twelve months of this reporting date.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions, with varying statutes of limitations. The tax years from inception through 2023 remain open to examination due to the carryover of unused net operating losses that are being carried forward for tax purposes.

In August 2022, the U.S. Inflation Reduction Act of 2022 and the CHIPS and Science Act of 2022 were signed into law. These acts include, among other provisions, a corporate alternative minimum tax of 15%, an excise tax on the repurchase of corporate stock, various climate and energy provisions, and incentives for investment in semiconductor manufacturing. These provisions are not expected to have a material impact on the Company’s results of operations or financial position.