| INCOME TAXES | 11. INCOME
TAXES We
account for income taxes in accordance with ASC 740 Income Taxes. ASC 740 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected tax consequences or events that have been recognized in our
consolidated financial statements or tax returns. ASC 740 also clarifies the accounting for uncertainty in income taxes recognized
in the consolidated financial statements. The interpretation prescribes a recognition threshold and measurement attribute for
the consolidated financial statements recognition and measurement of a tax position taken, or expected to be taken, in a tax return. The
Company files income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. The Company generally is
no longer subject to U.S. or state examinations by tax authorities for taxable years prior to 2019. However, net operating losses
utilized from prior years in subsequent years’ tax returns are subject to examination until three years after the filing
of subsequent years’ tax returns. The statute of limitations expiration in foreign jurisdictions for corporate tax returns
generally ranges between two and five years depending on the jurisdiction. The
(benefit) for income taxes consists of the following:
Year ended December 31, 2023 2022
Current:
State $ 14,248 $ 21,332
Deferred:
Federal (12,608,425 ) (6,428,448 )
State (755,237 ) (146,015 )
Total $ (13,349,414 ) $ (6,553,131 ) The
difference between the income tax provision computed at the federal statutory rate and the actual tax benefit is accounted for
as follows:
December 31, 2023 2022
Taxes computed at the federal statutory rate $ 808,876 $ 550,850
State income tax, net (585,381 ) (98,499 )
Research and development tax credit (133,089 ) (190,656 )
Change in valuation allowance (13,531,626 ) (6,616,952 )
Other 88,308 51,696
Accrued loss reserve adjustment — (253,738 )
Permanent differences 3,498 4,168
Benefit for income taxes $ (13,349,414 ) $ (6,553,131 ) The
components of deferred income tax assets and liabilities are as follows at December 31:
Deferred Tax Assets: 2023 2022
Allowance for credit losses $ 20,632 $ 60,100
Capitalized R&D 1,420,263 864,969
Credit carryforwards 2,278,642 2,193,146
Inventory reserve 350,073 722,991
Accrued payroll 151,986 267,819
Loss contracts reserve 75,402 46,205
Restricted stock 94,809 92,677
Acquisition costs 74,136 77,762
Lease liability 1,139,836 1,469,551
Accrued legal — 159,849
Disallowed interest expense 1,067,063 943,089
Net operating loss carryforward 16,356,545 17,513,901
Other 45,057 20,659
Deferred tax assets 23,074,444 24,432,718
Valuation allowance (569,143 ) (14,740,034 )
Deferred Tax Liabilities:
Prepaid expenses 143,126 207,980
Revenue recognition 1,224,106 1,341,105
Property and equipment 140,449 178,107
ROU asset 1,059,496 1,391,029
Deferred tax liabilities $ 2,567,177 $ 3,118,221
Net deferred tax assets $ 19,938,124 $ 6,574,463 During our review of the Company’s deferred
income tax positions as of December 31, 2023, we determined that the following adjustments are needed to our previously reported December
31, 2022 deferred tax assets and liabilities balances, with no impact to our net deferred tax assets, due to the inadequate review, assessment
of and reporting of the Company’s temporary differences between book and taxable income. More specifically, the adjustments are
required due to computational errors and incomplete analyses. Accordingly, we have restated the balances as previously reported, where
needed, as follows:
Deferred Tax Assets: 2022 (as Previously Reported) Restatement Adjustments 2022 (As Restated)
Allowance for credit losses $ 60,100 $ — $ 60,100
Capitalized R&D 864,969 — 864,969
Credit carryforwards 2,193,146 — 2,193,146
Inventory reserve 1,130,788 (407,797 ) 722,991
Accrued payroll 267,819 — 267,819
Loss contracts reserve 46,205 — 46,205
Restricted stock 160,989 (68,312 ) 92,677
Acquisition costs 77,762 — 77,762
Lease liability 1,469,551 — 1,469,551
Accrued legal 159,849 — 159,849
Disallowed interest expense 1,268,226 (325,137 ) 943,089
Net operating loss carryforward 19,493,530 (1,979,629 ) 17,513,901
Other 20,659 — 20,659
Deferred tax assets 27,213,593 (2,780,875 ) 24,432,718
Valuation allowance (14,916,923 ) 176,889 (14,740,034 )
Deferred Tax Liabilities:
Prepaid expenses 207,980 — 207,980
Revenue recognition 3,966,404 (2,625,299 ) 1,341,105
Property and equipment 156,794 21,313 178,107
ROU asset 1,391,029 — 1,391,029
Deferred tax liabilities $ 5,722,207 $ (2,603,986 ) $ 3,118,221
Net deferred tax assets $ 6,574,463 $ — $ 6,574,463 As
of December 31, 2023, the Company had approximately $ 74.7 17.3 14.4 80 100 As
a result of the Tax Cuts and Jobs Act of 2017 and the Coronavirus Aid, Relief, and Economic Security Act of 2020, federal NOLs
arising before January 1, 2018, and NOLs arising after January 1, 2018, are subject to different rules. Our pre-2018 NOLs totaled
approximately $ 60.3 The state NOLs begin to expire
in 2034 Our
ability to fully recognize the benefits from our NOLs is dependent upon our ability to generate sufficient income prior to their
expiration. In addition, our NOL carryforwards may be limited if we experience an ownership change as defined by Section 382 of
the Internal Revenue Code (“Section 382”). In general, an ownership change under Section 382 occurs if 5% shareholders
increase their collective ownership of the aggregate amount of our outstanding shares by more than 50 percentage points over a
relevant lookback period. The Company has completed a Section 382 analysis for the year ended December 31, 2022, and believes
that no ownership change occurred during the relevant lookback period that would limit our ability to use our NOLs. The sale of
additional equity securities in the future may trigger an ownership change under IRC Section 382, which could significantly limit
our ability to utilize our tax benefits. The
Company will recognize a tax benefit in the consolidated financial statements for an uncertain tax position only if management’s
assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50%) to be allowed by the
tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position
in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current
or deferred income tax assets and liabilities for financial reporting purposes. Assessing
the realizability of deferred tax assets requires the determination of whether it is more likely than not that some portion or
all the deferred tax assets will not be realized. In assessing the need for a valuation allowance, the Company considers all available
positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable
income, loss carryback and tax-planning strategies. Generally, more weight is given to objectively verifiable evidence, such as
a cumulative loss in recent years, as a significant piece of negative evidence to overcome. As of December 31, 2023, the Company
achieved three years of consecutive book and taxable income, along with projections of profitability, for which management determined that
there is sufficient positive evidence to conclude that it is more likely than not that a portion of the deferred tax assets will
be realized. As such, $ 14,170,891 569,143 The
income tax (benefit) for the year ended December 31, 2023 was $ (13,349,414) (346.6%) |
