Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes

v3.25.1
Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Taxes [Abstract]  
Income Taxes NOTE 13 - INCOME TAXES

Income tax (benefit) expense from continuing operations consists of the following:

Year Ended December 31

2024

2023

Current year income taxes :

Federal

$

—

$

17,622

State

76,398

59,975

76,398

77,597

Deferred income taxes:

Federal

$

(41,579)

$

41,579

(41,579)

41,579

Income tax expense

$

34,819

$

119,176

The provision for income taxes for continuing operations varied from the federal statutory tax rate as follows:

Year Ended December 31

2024

2023

Tax at U.S. statutory rate

21.0%

21.0%

State income taxes, net of federal benefit

(3.8)

4.4

Other nondeductible items

(4.3)

2.1

Change in valuation allowance

(8.1)

(30.0)

Other

(5.0)

0.5

Effective tax rate

(0.2)%

(2.0%)

Deferred tax assets and liabilities as of December 31 related to the following:

2024

2023

Deferred tax assets:

Allowance for doubtful accounts

$

62,747

$

24,266

Inventory

98,271

32,768

Accrued and prepaid expenses

287,495

131,692

Lease liability

988,437

1,183,679

Domestic net operating loss carry-forward

6,018,361

5,308,336

Other stock compensation

72,613

214,248

Intangible assets

—

214,600

Foreign net operating loss carry-forwards and credits

1,910,507

1,451,985

Federal and state credits

369,839

357,430

Business interest limitation carryforward

1,696,118

914,917

Other

15,961

464,019

Gross deferred tax assets

11,520,349

10,297,940

Valuation allowance

(10,248,132)

(8,970,982)

Net deferred tax assets

1,272,217

1,326,958

Deferred tax liabilities

Depreciation

(109,390)

(203,210)

Intangible assets

(202,202)

—

Lease right-of-use asset

(960,625)

(1,165,327)

Net deferred tax liability

(1,272,217)

(1,368,537)

Total net deferred tax liability

$

—

$

(41,579)

The Company assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2024. This objective evidence limits the ability to consider other subjective evidence such as the projections for future growth. On the basis of this evaluation, as of December 31, 2024, a valuation allowance of $10,248,132 has been recorded to reflect the portion of the deferred tax asset that is more likely to not be realized. The valuation allowance increased by $1,277,150 from December 31, 2023 to December 31, 2024. The Company continues to reassess the ability to realize the valuation allowance and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded accordingly.

As of December 31, 2024, the Company had had gross federal, state and foreign net operating loss carryforwards of $25,403,581, $15,332,443 and $7,642,027, respectively. The federal net operating loss carryforwards have carryforward periods of twenty years, or that are indefinite, and begin to expire in 2029. The state net operating loss carryforwards have carryforward periods of 12-20 years, or that are indefinite and begin to expire in 2027. The foreign net operating loss carryforwards are indefinite.

Section 382 of the Internal Revenue Code limits the utilization of U.S. net operating loss carryforwards and other tax attributes following a change of ownership or failure of continuity of business. Based on our analysis under Section 382, we believe that certain tax attributes will be subject to a limitation and will not be available for future periods. Management will continue to evaluate the limitation under Section 382 and does not expect a material impact because of the valuation allowance against the net deferred tax asset.

At December 31, 2024, the Company has an estimated federal research and development credit carryforward of approximately $220,000 and a state research and development credit carryforward of approximately $193,000. The utilization of these credits may be limited under the provisions of Section 383 of the Internal Revenue Code and similar state statutes. Section 383 governs the utilization of tax attribute carryforwards such as the research and development credit in the event of a change in

control of the Company, such as that which occurred as of March 28, 2022. Credits not used to reduce taxes are available to be carried forward.

The Company assesses uncertain tax positions in accordance with ASC 740. Under this method, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from these uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense.

Changes in the Company’s uncertain tax positions are summarized as follows:

2024

2023

Uncertain tax positions – January 1

$

43,028

$

75,347

Expiration of statute of limitations

(7,560)

(32,319)

Uncertain tax positions – December 31

$

35,468

$

43,028

Included in the balance of uncertain tax positions at December 31, 2024 are $35,468 of tax benefits that if recognized would affect the tax rate. The Company’s unrecognized tax benefits will be reduced by $2,803 in the next twelve months as a result of the statute of limitations. There are no other expected significant changes in the Company’s uncertain tax positions in the next twelve months. The Company’s income tax liability accounts included accruals for interest and penalties of $0 at December 31, 2024. The Company’s 2024 income tax expense decreased by $0 due to net decreases for accrued interest and penalties.

The Company is subject to taxation by the United States, foreign and state and local jurisdictions. In general, the Company’s tax years 2019 through 2023 remain open to assessment.