Note 14 - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

14. Income Taxes

Loss before income tax benefits were comprised of $18,982,000 from U.S. and income of $63,000 from foreign jurisdictions for the year ended December 31, 2023 and $11,752,000 from U.S. and $60,000 from foreign jurisdictions for the year ended December 31, 2022.

The reconciliation of federal income tax attributable to operations computed at the federal statutory tax rate to income tax benefit is as follows for the:

	Year Ended December 31,
	2023			2022
Statutory federal income tax benefit	$	(3,973,000	)	$	(2,481,000	)
Intangible assets		–			–
PPP loan forgiveness		–			–
Incentive stock options		–			–
Change in valuation allowance		3,779,000			(284,000	)
Expiration of net operating losses		1,469,000			1,356,000
Disallowed financing costs		2,210,000			1,179,000
State and local taxes		(3,508,000	)		200,000
Foreign rate differential		–			11,000
Other		23,000			19,000
Total income tax expense	$	–		$	–

As of December 31, 2023, we had federal net operating loss carryforwards of approximately $121,101,000 to offset future federal taxable income, with $89,104,000 available through 2037 and $31,997,000 available indefinitely. We also had state net operating loss carryforwards of approximately $54,441,000 that may offset future state taxable income through 2043.

As of December 31, 2023, the Company has research and experimentation credit carryforwards of $1,478,000 for federal tax purposes that expire in various years between 2024 and 2043, and $1,516,000 for state income tax purposes that do not have an expiration date, and some of which expire in 2031 and 2032.

Significant components of the Company’s deferred tax assets and liabilities for federal and state income taxes are as follows:

	Year Ended December 31,
	2023			2022
Deferred tax assets:
Net operating loss carryforwards	$	29,233,000		$	26,465,000
Income tax credit carryforwards		2,676,000			2,738,000
Stock compensation		620,000			421,000
Lease obligation		1,015,000			908,000
Deferred revenue		75,000			251,000
Inventory Reserve		1,003,000			517,000
Sec. 174 Capitalized R&D		488,000			317,000
Other		267,000			159,000
Total deferred tax assets		35,377,000			31,776,000
Deferred tax liabilities
Depreciation and amortization		–			(252,000	)
Lease asset		(898,000	)		(824,000	)
Total deferred tax liabilities		(898,000	)		(1,076,000	)
Valuation allowance		(34,479,000	)		(30,700,000	)
Net deferred taxes	$	–		$	–

ASC 740 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. Because of the Company's recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.

The valuation allowance increased by $3,779,000,000 and decreased by $284,000 during the years ended December 31, 2023 and 2022, respectively.

In August 2016, the conversion of the Boyalife debentures effected an “ownership change” as defined under the provisions of the Tax Reform Act of 1986. As a result, any net operating loss and credit carryovers existing at that date will be subject to an annual limitation regarding their utilization against taxable income in future periods. Additionally, before the conversion of the debentures, it is possible that “ownership changes” occurred, which could create additional limitations on the use of our net operating losses and credit carryovers. Additionally, ownership changes may have occurred in the periods after 2016 which could limit our utilization of losses and credits generated in the years 2016 – 2023.

On December 22, 2017, the U.S. enacted comprehensive tax legislation (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code, including the amendment of Code Section 174 requiring capitalization of research and experimentation expenditures for tax years beginning after December 31, 2021. The capitalized expenses are amortized over a period of 5 or 15 years depending on whether they are U.S. or foreign based.

On August 16, 2022, the President signed into law H.R. 5376 (commonly called the “Inflation Reduction Act of 2022”). The primary tax provisions in the new law include an alternative minimum tax (“AMT”) on certain large corporations, a tax on stock buybacks and certain energy-related tax credits, each of which become effective after December 31, 2022. The provisions of the Inflation Reduction Act are not expected to have a material effect on the Company’s financial statements and related disclosures.

The Company does not have any uncertain tax positions at December 31, 2023 or December 31, 2022. For the most part, tax years after 2002 are all open to examination by federal and state tax authorities and after 2015 by foreign tax authorities.