Annual report pursuant to Section 13 and 15(d)

Note 7 - Income Taxes

Note 7 - Income Taxes
12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 7 Income Taxes


ASC 740, Income Taxes, requires that the tax benefit of net operating losses, temporary differences, and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. The Company has reviewed the positive and negative evidence relating to the realizability of the deferred tax assets and has concluded that the deferred tax assets are not “more likely than not” to be realized. The valuation allowance increased by approximately $2,124,000 and $3,421,000 during the years ended December 31, 2023, and 2022, respectively.


The provision for income taxes for December 31, 2023, and 2022, consists of the following:



As of December 31,









  $ -     $ -  


    800       800  


    -       -  

Total current:

    800       800  




    -       -  


    -       -  


    -       -  

Total deferred:

    -       -  

Total provision*

  $ 800     $ 800  


*Total provision for income taxes of $800 for each of the years ended  December 31, 2023 and 2022, is recorded in general and administrative expenses on the Company’s consolidated statements of operations and comprehensive loss as it is not considered a material amount.


The difference between the effective tax rate and the U.S. federal tax rate is as follows (in %):



As of December 31,






Federal income tax

    21.00       21.00  

State income taxes, less federal benefit

    6.03       6.39  

Tax credits

    3.12       5.57  

Permanent differences

    (2.81 )     (2.45 )

Change in valuation allowances

    (25.33 )     (32.58 )


    (2.02 )     2.06  

Effective tax rate benefit (expense)

    (0.01 )     (0.01 )


Deferred tax assets and liabilities consist of the following:



As of December 31,






Deferred tax assets:


Net operating loss carryforwards

  $ 3,871,391     $ 3,548,494  

Tax credits carryforwards

    1,322,457       1,254,678  

Stock-based compensation

    800,998       630,113  

Intangible asset basis differences

    4,417,201       3,824,482  

Accrued liabilities & allowances

    76,403       96,478  

Capitalized research and development

    2,777,414       1,787,350  

Gross deferred tax assets

    13,265,864       11,141,595  

Valuation allowance

    (13,265,864 )     (11,141,595 )

Net deferred tax assets

  $     $  


As of December 31, 2023, Company had total federal net operating loss carryforwards of approximately $13,548,000, which will begin to expire in 2035. Losses generated after 2017 will be carried forward indefinitely. At December 31, 2023, the Company had state net operating loss carryforwards of approximately $13,578,000 which will begin to expire in 2035.


As of December 31, 2023, the Company had federal and state tax credits of $1,554,000 and $125,000, respectively. The federal credits expire beginning after the year 2035 and the state credits begin to expire in 2024.


The Tax Reform Act of 1986 limits the use of net operating carryforwards and R&D credits in certain situations where changes occur in the stock ownership of a company. In the event the Company has had a change in ownership, utilization of the carryforwards and R&D credits could be limited. The Company has not performed a net operating loss or R&D credit utilization study to date.


The Company accounts for uncertain tax positions in accordance with ASC 740-10,Accounting for Uncertainty in Income Taxes.” ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or are expected to be taken on a tax return. It is Company’s policy to include penalties and interest expense related to income taxes as an income tax expense.


A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:







Beginning uncertain tax benefits

  $ 321,175     $ 103,104  

Current year - increases

    65,389       150,701  

Prior year - increases (decreases)

    (50,742 )     67,370  

Ending uncertain tax benefits

  $ 335,822     $ 321,175  


Included in the balance of uncertain tax benefits at December 31, 2023 are $335,822 of tax benefits that, if recognized, would not impact the effective tax rate as it would be offset by the reversal of related deferred tax assets which are subject to a full valuation allowance. The Company anticipates that no material amounts of unrecognized tax benefits will be settled within 12 months of the reporting date. As of December 31, 2023, the Company had no accrued interest or penalties recorded related to uncertain tax positions.


The Company files U.S. federal, California and Illinois state tax returns. The Company is subject to California state minimum franchise taxes. All tax returns will remain open for examination by the federal and state taxing authorities for three and four years, respectively, from the date of utilization of any net operating loss carryforwards or R&D credits. In addition, due to the operations in certain foreign countries, the Company became subject to local tax laws of such countries. Nonetheless, as of December 31, 2023, due to the insignificant expenditures in such countries, there was no material tax effect to the Company’s 2023 consolidated financial statements.


On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“TCJA”) was enacted. On January 1, 2022, a provision of the TCJA went into effect which requires the capitalization of research and development costs in the year incurred and requires taxpayers to amortize such costs over five years and 15 years for domestic and foreign expense, respectively. The Company evaluated the impact of the TCJA and prepared the provision by following the treatment of research and development expenditures for tax purposes under Section 174.