Annual report pursuant to Section 13 and 15(d)

Income Tax

v3.22.1
Income Tax
 12 Months Ended
Dec. 31, 2021
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,
2021 2020
Computed “expected” tax benefit (930,000) 21.00  % (224,100) 21.00  %
Increase (reduction) in income taxes resulting from):
State tax, net of federal benefit (178,800) 4.04  % (72,700) 6.77  %
Permanent items 393,400  (8.88) % 1,700  (0.16) %
State research and development credits (6,200) 0.14  % (2,500) 0.23  %
Change in valuation allowance 726,800  (16.41) % 297,600  (27.84) %
Other (5,200) 0.11  % —  —  %
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:

For the Years ended December 31,
2021 2020
Deferred tax assets (liabilities):
Net operating loss carryforwards
 $ 1,982,000  $ 1,317,000 
Research and development credits
 33,200  27,000 
Other
 59,500  3,900 
Total deferred tax assets
 2,074,700  1,347,900 
Valuation Allowance
 (2,074,700) (1,347,900)
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 $726,800 for the period ended December 31, 2021.

As of December 31, 2021, the Company had net operating loss carryforwards for federal and state income tax purposes; each are approximately $7,100,000. If not utilized, these net federal and state operating loss carryforwards will expire beginning in 2035. The 20-year limitation was eliminated for losses generated after January 1, 2018, giving the taxpayer the ability to carry forward losses indefinitely. However, net operating losses will now be limited to 80 percent of taxable income. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, net operating loss carryback potential and tax planning strategies in making these assessments.

As of December 31, 2021, the Company has federal and state tax credit carryforwards of $7,882 and $50,042, respectively. The state tax credit carryforwards do not expire.

Under Section 382 of the Internal Revenue Code of 1986, as amended, the Company's ability to utilize NOLs or other tax attributes such as research tax credits, in any taxable year may be limited if the Company experiences, or has experienced, an "ownership change." A Section 382 "ownership change" generally occurs if one or more stockholders or groups of stockholders, who own at least 5% of the Company's stock, increase their ownership by more than 50 percentage points
over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. The Company may in the future experience, one or more Section 382 "ownership changes." If so, the Company may not be able to utilize a material portion of its NOLs and tax credits, even if the Company achieves profitability.

The Company’s policy to recognize interest and penalties associated with unrecognized tax benefits as part of the income tax provision and include accrued interest and penalties with the related income tax liability on the Company’s balance sheet. To date, the Company has not recognized any interest and penalties in its statements of operations, nor has it accrued for or made payments for interest and penalties associated with unrecognized tax benefits.

The Company files federal and state income tax returns with varying statutes of limitations. The tax years from inception through 2021 remain open to examination due to the carryover of unused net operating losses and tax credits.