16. Income Taxes 

As a result of the net losses, we have incurred in each fiscal year since inception, we have recorded no provision for federal income taxes for the years ended December 31, 2022 and December 31, 2021. Income tax expense incurred in 2022 and 2021 relates to state income taxes. At December 31, 2022 and December 31, 2021, the Company had no unrecognized tax benefits.

A reconciliation of the expected income tax (benefit) computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows:

Schedule of Effective Income Tax Rate Reconciliation

The principal components of the Company’s deferred tax assets and liabilities consist of the following at December 31, 2022 and 2021:

Schedule of Deferred Tax Assets and Liabilities

The Company has had no federal income tax expense due to operating losses incurred since inception. The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on this, the Company has provided a valuation allowance for the full amount of the net deferred tax assets as the realization of the deferred tax assets is not determined to be more likely than not. During 2022, the valuation allowance increased by $5.1 million, primarily due to the increase in the Company’s net operating loss carryforwards during the period.

As of December 31, 2022, the Company had approximately $123.4 million and $89.2 million of Federal and state net operating loss carryforwards, respectively. $113.8 million of the federal NOLs are not subject to expiration and the remaining NOLs begin to expire in 2036. These loss carryforwards are available to reduce future federal taxable income, if any. These loss carryforwards are subject to review and possible adjustment by the appropriate taxing authorities. The amount of loss carryforwards that may be utilized in any future period may be limited based upon changes in the ownership of the Company’s shareholders.

The Company follows the provisions of ASC 740-10, “Accounting for Uncertainty in Income Taxes,” which specifies how tax benefits for uncertain tax positions are to be recognized, measured, and recorded in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. As of December 31, 2022, the Company has not recorded any amounts for uncertain tax positions. The Company’s policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any, in its statements of operations. As of December 31, 2022 the Company had no reserves for uncertain tax positions. For the year ended December 31, 2022 no estimated interest or penalties were recognized on uncertain tax positions.

The Company’s tax returns 2019 through 2022 remain open and subject to examination by the Internal Revenue Service and state taxing authorities. Net operating loss carryovers from earlier years are also subject to exam and adjustment.