Income Taxes
The components of the Company's net deferred tax assets at December 31 are as follows:
| | | | | | | | | | | | | | |
| | 2024 | | 2023 |
| | | | |
| Deferred Tax Assets | | | | |
| Net operating loss and tax credits | | $ | 14,312,099 | | | $ | 15,427,801 | |
| Property and equipment and intangibles | | 79,979 | | | 71,990 | |
| Right-of-use liability | | 1,205,692 | | | 1,307,178 | |
| Intangible assets | | 2,762,590 | | | 2,337,091 | |
| Section 174 expenses | | 2,586,832 | | | 2,208,093 | |
| Allowance for accounts receivable | | 306,007 | | | 147,919 | |
| Reserve for expired product | | 649,549 | | | 616,979 | |
| Inventory | | 266,695 | | | 185,189 | |
| Business interest expense limitation | | 54,720 | | | — | |
| Deferred charges | | 1,027,520 | | | 937,935 | |
| Cumulative compensation costs incurred on deductible equity awards | | 83,189 | | | 176,926 | |
| Total deferred tax assets | | 23,334,872 | | | 23,417,101 | |
| | | | |
| Deferred Tax Liabilities | | | | |
| Right-of-use asset | | (1,385,534) | | | (1,547,773) | |
| Net deferred tax assets, before valuation allowance | | 21,949,338 | | | 21,869,328 | |
| Less: deferred tax asset valuation allowance | | (21,949,338) | | | (21,869,328) | |
| Net deferred taxes | | $ | — | | | $ | — | |
The following table summarizes the amount and year of expiration of the Company's federal and state net operating loss carryforwards as of December 31, 2024:
| | | | | | | | | | | | | | |
| Years of expiration | | Federal | | State |
| | | | |
| 2025 | | $ | — | | | $ | 213,534 | |
| 2026-2042 | | 45,526,439 | | | 26,275,020 | |
| Indefinite Period | | 7,143,930 | | | 3,299,837 | |
| | | | |
| Total federal and state net operating loss carryforwards | | $ | 52,670,369 | | | $ | 29,788,391 | |
Income tax expense (benefit) includes the following components for the years ended December 31:
| | | | | | | | | | | | | | | | |
| | 2024 | | 2023 | | |
| Current: | | | | | | |
| Federal | | $ | — | | | $ | — | | | |
| State and other | | (22,669) | | | 45,769 | | | |
| Total current income tax expense | | (22,669) | | | 45,769 | | | |
| | | | | | |
| Deferred: | | | | | | |
| Federal | | — | | | — | | | |
| State | | — | | | — | | | |
| Total deferred income tax expense | | — | | | — | | | |
| Total income tax expense (benefit) | | $ | (22,669) | | | $ | 45,769 | | | |
The Company’s effective income tax rate for 2024 and 2023 reconciles with the federal statutory tax rate as follows:
| | | | | | | | | | | | | | | | |
| | 2024 | | 2023 | | |
| Income tax expense computed at federal statutory tax rate | | 21.00 | % | | 21.00 | % | | |
| State Taxes Net of Federal Benefit | | 0.11 | | | (0.58) | | | |
| Tax Credits Generated | | 3.31 | | | 0.80 | | | |
| Change in valuation allowance | | (23.61) | | | (4.96) | | | |
| Permanent differences | | (1.86) | | | (6.51) | | | |
| Expiring tax credits | | (0.28) | | | (3.32) | | | |
| Deferred True-ups | | 1.67 | | | (7.16) | | | |
| Net loss tax benefit (expense) | | 0.34 | % | | (0.73) | % | | |
The Company believes that it is not more likely than not that its net deferred tax assets will be realized. As such, the net deferred tax assets are fully offset with a valuation allowance as of the periods ended December 31, 2024 and 2023.
As of December 31, 2024, the Company has general business credit carryforwards of $1.5 million. These credit carryforwards will expire in years 2025 through 2044.
| | | | | | | | |
| Years of expiration | | Federal |
| 2025 | | $ | 25,323 | |
| 2026-2044 | | 1,518,577 | |
| Total federal and state credit carryforwards | | $ | 1,543,900 | |
The Company expects it will continue to pay minimal taxes in future periods through the continued utilization of net operating loss carryforwards, as it is able to achieve taxable income through its operations. The Company is no longer subject to U.S. federal tax examinations for tax years before 2021, and with few exceptions, the Company is not subject to examination by state tax authorities for tax years which ended before 2021. Loss carryforwards and credit carryforwards generated or utilized in years earlier than 2021 remain subject to examination and adjustment. During 2012, the 2009 federal tax return was examined by the Internal Revenue Service with no significant findings or adjustments. During 2024, the 2022 federal tax return was selected for examination by the Internal Revenue Service. Based on the audit plan, the estimated completion date of this exam is July 31, 2025. The Company has no unrecognized tax benefits in 2024 and 2023.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.