Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.23.1
INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES
 
NOTE I – INCOME TAXES
 
The effective tax rate for the years ended December 31, 2022 and December 31, 2021 i
s 1.0% and 2.0%, res
pectively.
The primary drivers for the differences in the rates from the prior-year period to the current-year period is the acquisition of an entity in a foreign jurisdiction in the fourth quarter of 2021.
 
Provision for income taxes consists of U.S. and state income taxes and income taxes in certain foreign jurisdictions in which the Company conducts business. The Company is in an overall deferred tax asset position in the U.S. and maintains its valuation allowance for certain federal and state tax jurisdictions as existing deferred tax liabilities do not provide sufficient future taxable income to realize the full benefit of its deferred tax assets.
 
During the years ended December 31, 2022 and December 31, 2021, the Company did
not
record any material interest or penalties related to uncertain tax positions.
 
The Company files tax returns in the U.S. federal jurisdiction, and in multiple state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years before 2019 and is no longer subject to state, local and foreign income tax examinations by tax authorities for years before 2018. The Company is currently not under audit by any jurisdictions.
 
The provisions for income taxes for the years ended December 31, 2022 and December 31, 2021 are as follows:
 
 
 
Year ended December 31,
2022
 
 
Year ended December 31,
2021
 
Current:
 
 
 
 
 
 
 
 
Federal
 
$
-
 
 
$
-
 
State
 
 
-
 
 
 
-
 
Foreign
 
 
-
 
 
 
-
 
 
 
 
-
 
 
 
-
 
 
 
 
 
 
 
 
 
 
Deferred:
 
 
 
 
 
 
 
 
Federal
 
 
-
 
 
 
(841,000
)
State
 
 
-
 
 
 
(280,000
)
Foreign
 
 
(348,000
 )
 
 
-
 
Change in valuation allowance
 
 
-
 
 
 
-
 
 
 
 
(348,000
 )
 
 
(1,121,000
)
 
 
 
 
 
 
 
 
 
Income tax benefit
 
$
(348,000
 )
 
$
(1,121,000
)
A reconciliation of the federal statutory rate to the effective tax rate is as follows:
 
 
Year ended December 31,
2022
 
 
Year ended December 31,
2021
 
Federal statutory rate
 
 
21
%
 
 
21
%
State, net of federal tax benefit
 
 
7
%
 
 
7
%
Change in valuation allowance:
 
 
(27
)%
 
 
(26
)%
Effective tax rate
 
 
1
%
 
 
2
%
 

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future.  Management has assessed the realizability of deferred tax assets and has determined there is sufficient evidence that all of the deferred tax assets may not be realized.  As such, the Company has recorded a 100% valuation allowance against the net deferred tax assets of the U.S. consolidated group.

At December 31, 2022 and December 31, 2021 the deferred income tax assets and liabilities consisted of the following temporary differences:

 
 
As of December 31, 2022
 
 
As of December 31, 2021
 
Deferred tax assets:
 
 
 
 
 
 
 
 
Net operating losses
 
$
34,885,000
 
 
$
20,103,000
 
Share based compensation
 
 
727,000
 
 
 
598,000
 
Accrued vacation
 
 
149,000
 
 
 
111,000
 
Accrued payroll
 
 
877,000
 
 
 
616,000
 
Accrued interest
 
 
447,000
 
 
 
519,000
 
Lease liabilities
 
 
1,027,000
 
 
 
420,000
 
Fair value of Warrant Commitment Liability
 
 
-
 
 
 
898,000
 
Fair value - Class B Units
 
 
-
 
 
 
2,268,000
 
Total deferred assets
 
 
38,112,000
 
 
 
25,533,000
 
Less valuation allowance for deferred tax assets
 
 
(34,905,000
)
 
 
(23,651,000
)
Net deferred tax asset
 
 
3,207,000
 
 
 
1,882,000
 
Deferred tax liabilities:
 
 
 
 
 
 
 
 
Property, plant and equipment
 
 
(243,000
)
 
 
(328,000
)
Intangibles
 
 
(1,901,000
)
 
 
(2,759,000
)
Lease assets
 
 
(1,093,000
)
 
 
(419,000
)
Fair value of Warrant Commitment Liability
 
 
(274,000
)
 
 
-
 
Fair value - Class B Units
 
 
(958,000
)
 
 
-
 
Total deferred tax liabilities
 
 
(4,469,000
)
 
 
(3,506,000
)
Net deferred tax liability
 
$
(1,262,000
)
 
$
(1,624,000
)

As of December 31, 2022, the Company had available federal net operating losses of
$133.8 million
with a portion of these expiring in 2023 and a portion that may be used indefinitely.  The Company had state net operating losses of approximately $92.4 which can be carried forward indefinitely. The Company had foreign net operating losses of $1.4 million.  These net operating losses  can be utilized to offset future earnings of the Company. The utilization of the net operating losses is dependent upon the tax laws in effect at the time such losses can be utilized. Should the Company experience a significant change in ownership, the utilization of net operating losses could be reduced.