Annual report pursuant to Section 13 and 15(d)

Income taxes

v3.24.1
Income taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income taxes Income Taxes
A reconciliation of the federal statutory income tax provision to our actual provision for the years ended December 31, 2023 and 2022 is as follows:
  2023 2022
Pre-tax book income (loss) $ (4,490,665) $ (2,381,360)
Expected tax at 21%
(943,040) (500,086)
Permanent differences:
Mark to market —  (3,937)
Intangible amortization (46,373) (89,480)
Other 6,474  2,404 
State taxes:
Current 32,491  16,352 
Deferred (264,759) (162,688)
Other items:
Federal research and development credits (84,592) (7,647)
Deferred tax past year true-up's (63,440) (46,786)
Change in valuation allowance 980,342  668,326 
Capitalized research and development expenses 334,120  174,674 
Other 81,268  (34,780)
Income tax provision $ 32,491  $ 16,352 
The components of net deferred tax assets recognized in the accompanying consolidated balance sheets at December 31, 2023 and 2022 are as follows:
  2023 2022
Net operating loss carryforwards $ 10,840,000  $ 9,812,000 
R&D and ITC credit carryforwards 403,000  310,000 
Accrued expenses and other 381,000  317,000 
Intangibles 486,000  342,000 
Leases 8,000  17,000 
Accounts receivable 39,000  96,000 
Stock options 450,000  386,000 
Inventory 427,000  366,000 
Property, plant and equipment 650,000  705,000 
Other 323,000  342,000 
Deferred tax assets 14,007,000  12,693,000 
Valuation allowance (14,007,000) (12,693,000)
Deferred tax assets, net $ —  $ — 

At December 31, 2023, we had approximately $38,710,000 of Federal net operating loss carryforwards ("NOL") of which $1,547,000 expired as of December 31, 2023, $22,393,000 expire beginning in 2024 through 2039 and $16,317,000 have an indefinite carryforward. In addition, we have $27,190,000 of state net operating losses, expiring at various dates starting in 2024 through 2042.
The Tax Cuts and Jobs Act was enacted on December 22, 2017. A significant provision of the act was to reduce the statutory Federal tax rate from 34% to 21%. During 2023, our valuation allowance increased by $1,314,000. This increase is
affected by the absorption of deferred tax attributes associated with its acquisition of American DG Energy, Inc. along with permanent book to tax differences and provision to return adjustments.
In accordance with the provisions of the Income Taxes topic of the Codification, we have evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets, which are comprised principally of net operating losses. Management has determined that it is more likely than not that we will not recognize the benefits of federal and state deferred tax assets and, as a result, a full valuation allowance has been established for 2022 and 2023, respectively.
    Utilization of the NOL and research and development credit carryforwards are subject to a substantial annual limitation due to ownership changes, as provided by Section 382 of the Internal Revenue Code of 1986, as well as similar state provisions. Ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.
    We acquired American DG Energy, Inc. during 2017, by acquiring 100 percent of the company's stock. Accordingly, utilization of their consolidated and/or separately computed NOL and/or tax credit carryforwards will be subject to an annual limitation under Internal Revenue Code Section 382. Any such limitation may result in expiration of a portion of the NOL or tax credit carryforwards before utilization. The extent of the limitation, and related allocation and impact upon the NOL and credit carryforwards has been determined to be $391,940 per year for a 20 year period at the ADGE level. However, we have sufficient pre-merger NOLs to offset anticipated taxable income for the taxable year ended December 31, 2023 and do not expected to be limited in NOL utilization for the period.
A full valuation allowance has been provided against our loss carryforwards and, if an adjustment is required under Section 382, it would be offset by a corresponding adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if an adjustment were required.
We have not recorded any amounts for unrecognized tax benefits as of December 31, 2023 or 2022.
We file tax returns as prescribed by the tax laws of the jurisdiction in which we operate. In the normal course of business, we are subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. Our tax returns from tax year 2020 are still open for examination for both federal and state jurisdictions.