HARROW, INC. Income Taxes Disclosure

NOTE 16. INCOME TAXES

 

The Company is subject to taxation in the U.S., New Jersey, Tennessee, and various other states. The Company’s income tax provision consists of the following for the years ended December 31, 2024 and 2023:

 

SCHEDULE OF PROVISION FOR INCOME TAXES

		2024				2023
		December 31,
		2024				2023
Current:
Federal		$	46,000			$	-
State			115,000				701,000
Total current		$	161,000			$	701,000
Deferred:
Federal		$	-			$	-
State			-				-
Total deferred			-				-
Income tax provision		$	161,000			$	701,000

 

A reconciliation of income taxes computed by applying the statutory U.S. income tax rate to the Company’s loss before income tax provision to the income tax provision is as follows:

 

SCHEDULE OF INCOME TAX PROVISION

		2024				2023
		December 31,
		2024				2023
U.S. federal statutory tax rate			21.00	%			21.00	%
State tax benefit, net			(2.49	)%			0.77	%
Rate change			1.87	%			(8.02	)%
Employee stock-based compensation			(8.61	)%			19.93	%
Excess Employee remuneration			(5.95	)%			(30.83	)%
Melt loan settlement			-	%			(4.52	)%
Other			1.71	%			2.97	%
Uncertain tax positions			0.09	%			(11.71	)%
Research and development tax credit			2.66	%			0.53	%
Provision-to-return true-ups			(0.75	)%			1.72	%
Other true-ups			(1.87	)%			(0.43	)%
Total			7.66	%			(8.59	)%
Change in valuation allowance			(8.59	)%			5.71	%
Effective income tax rate			(0.93	)%			(2.88	)%

 

  

Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:

 

SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES

		2024				2023
		December 31,
		2024				2023
Deferred tax assets (liabilities):
NOL		$	2,448,000			$	4,669,000
Depreciation and amortization			1,753,000				1,637,000
Other			443,000				854,000
Research and development credits			655,000				220,000
Deferred stock compensation			1,523,000				1,059,000
Basis difference in Eton			-				(583,000	)
Basis difference in Melt investments			3,620,000				3,405,000
Federal benefit of state ASC740-10 reserves			104,000				88,000
Limitation Under 163(j)			4,605,000				2,893,000
Section 174 capitalized expenses			2,276,000				1,261,000
ASC 842 lease liability			2,304,000				1,710,000
ASC 842 ROU asset			(2,121,000	)			(1,582,000	)
Total deferred tax assets, net			17,610,000				15,631,000
Valuation allowance			(17,610,000	)			(15,631,000	)
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 $1,979,000 during 2024 and decreased by $1,391,000 during 2023.

 

As of December 31, 2024, the Company had federal and state net operating loss carryforwards of approximately $27,669,000, which will begin to expire in 2036 for federal purposes, unless previously utilized, and will begin to expire for state purposes in 2028. In addition, the Company has federal net operating loss carryforward of $2,875,000 generated after 2017 that can be carried over indefinitely and may be used to offset up to 80% of federal taxable income.

 

As of December 31, 2024, the Company had federal and state research and development credit carryforwards of approximately $577,000 and $99,000, respectively, which will begin to expire in 2031, unless previously utilized. For state purposes, the state research and development credit carryforwards can be carried over indefinitely.

 

Utilization of the net operating losses and research and development carryforwards may be subject to a substantial annual limitation due to ownership change limitations that might have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and R&D credit carryforward that can be utilized annually to offset future taxable income and tax liabilities. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Since the Company’s formation, the Company has raised capital through the issuance of capital stock on several occasions which, combined with the purchasing stockholders’ subsequent disposition of those shares, may have resulted in such an ownership change, or could result in an ownership change in the future upon subsequent disposition.

 

As of December 31, 2024 and 2023, the Company had approximately $2,858,000 and $2,822,000, respectively of unrecognized tax benefits which, if fully recognized, would decrease its effective tax rate. Interest or penalties of $69,000 and $40,000 were accrued relating to unrecognized tax benefits as of December 31, 2024 and 2023, respectively.

 

  

A reconciliation of the change in the unrecognized tax benefits balance for the years ended December 31, 2024 and 2023 is as follows:

 

SCHEDULE OF UNRECOGNIZED TAX BENEFITS

		Federal & State Tax
Balance at January 1, 2024		$	2,822,000
Additions for tax positions related to current year			5,000
Additions/(reductions) for tax positions related to prior years			32,000
Balance at December 31, 2024		$	2,858,000

 

		Federal & State Tax
Balance at January 1, 2023		$	-
Additions for tax positions related to current year			36,000
Additions/(reductions) for tax positions related to prior years			2,786,000
Balance at December 31, 2023		$	2,822,000