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Note R - Income Taxes
 12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

NOTE R—INCOME TAXES

 

The components of net loss consist of the following:

 

  

Year ended

  

Year ended

 
  

December 31,

  

December 31,

 
  

2023

  

2022

 
         

United States

 $(7,279,970) $(10,416,593)

Hong Kong

  (627,146)  (458,839)

Nigeria

  (203,700)  (143,499)

Spain

  (411,021)  (890,972)

Total

 $(8,521,837) $(11,909,903)

 

There was no provision for current federal, foreign or state taxes for both of the years ended December 31, 2023 and 2022 as a result of taxable losses incurred in these jurisdictions. The provision for income tax benefits consist of the following (in thousands):

 

  

Year ended

  

Year ended

 
  

December 31,

  

December 31,

 
  

2023

  

2022

 
         

Current – federal,

 $-  $- 

state

        

foreign

  40,986     

Deferred- Federal

      1,175,000 

States

      122,000 

Foreign

  (175,000)  (20,434)

Total

  (134,014)  1,276,566 

Change in valuation allowance

      (1,297,000)
         

Provision for income tax expense (benefit)

 $(134,014) $(20,434)

 

Significant components of deferred tax assets and liabilities are as follows at December 31, 2023 and 2022 (in thousands):

 

  

December 31,

  

December 31,

 
  

2023

  

2022

 
         

Accrued compensation

 $112,201  $113,000 

Allowance for doubtful accounts

  90,405   169,000 

Research and development expenses

  1,017,551   633,000 

Capital loss carry forward

  114,251   114,000 

Stock-based compensation

  32,408   456,000 

Equipment and leasehold improvements

  (12,353)  (19,000)

Intangible assets - US

  -   341,000 

Intangible assets - Foreign

  (145,000)  (170,000)

Reserve - Foreign

  150,000   - 

Inventory reserve

  828,668   89,000 

Interest expense

  -   44,000 

Operating lease liabilities

  -   44,000 

Other

  1,000   - 

Tax credits

  1,748,235   - 

Operating lease right-of-use assets

  206   (44,000)

Net operating loss and research and credit carryforwards

  13,277,118   15,248,000 

Valuation allowance

  (17,214,690)  (17,188,000)
         

Net deferred tax liability

 $-  $(170,000)

 

The Company has a valuation allowance against the full amount of its net deferred taxes due to the uncertainty of realization of the deferred tax assets due to operating loss history of the Company. The Company currently provides a valuation allowance against deferred taxes when it is more likely than not that some portion, or all of its deferred tax assets will not be realized. The valuation allowance could be reduced or eliminated based on future earnings and future estimates of taxable income. With a full valuation allowance, any change in the deferred tax asset or liability is fully offset by a corresponding change in the valuation allowance. At December 31, 2023 and 2022, the Company provided a valuation allowance on its net deferred tax assets of $17,239,173 and $17,188,000, respectively.

 

As of December 31, 2023, the Company has U.S. federal net operating loss carryforwards of approximately $60.3 million. Approximately $39.7 million are subject to expiration between 2024 and 2037, and $18.6 million net operating loss carryforwards have no expiration date. These net operating loss carryforwards could be subject to the limitations under Section 382 of the Internal Revenue Code due to changes in the equity ownership of the Company. In addition, the Company has net operating loss carry forwards from various states of approximately $5.3 million which expire from 2026 through 2042.

 

A reconciliation of the effective income tax rate on operations reflected in the statements of operations to the US federal statutory income tax rate is presented below.

 

  

Year ended

  

Year ended

 
  

December 31,

  

December 31,

 
  

2023

  

2022

 
         

Federal statutory income tax rate

  21%  21%

State taxes, net of federal benefit

  (1.41)  0.9 

Permanent differences

  1.97   (4.7)

Expiration of net operating loss and research credit carryforwards

  (7.84)  (5.7)

Expiration and forfeiture of stock options

  -   (0.3)

foreign rate differential

  (5.84)    

rate change

  (1.05)    

Other

  (9.08)  (0.5)

Valuation allowance

  (0.24)  (10.9)
         

Effective tax rate

  (2.5)%  (0.2)%

 

The Company has not been audited by the Internal Revenue Service (“IRS”) or any states in connection with income taxes. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The periods from 2019 through 2022 remain open to examination by the IRS and state jurisdictions.

 

The Company's subsidiary in Nigeria has not filed its required returns since inception. Management believes that when the returns are filed, no taxes will be owed due to the losses incurred during those periods. The Company is not subject to minimum tax during the first four years of operations. As a result, management could not calculate the amount of net operating loss carryforwards that are available to offset future taxable income.

 

The Company's subsidiary in Hong Kong has not filed its required returns in several years. Management believes that when the returns are filed, no taxes will be owed due to losses incurred during those periods. As a result, management could not calculate the amount of net operating loss carryforwards are available to offset future taxable income.

 

The Company believes it is not subject to any tax audit risk beyond those periods. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense incurred during the years ended December 31, 2023 and 2022.