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Note 6 - Income Taxes
 12 Months Ended
Dec. 31, 2022
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 6 – Income Taxes

 

Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets are established for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The effects of income taxes are measured based on enacted tax laws and rates.

 

The provision for income taxes from continuing operations consists of the following (in $’000):

 

   

Year Ended December 31,

  
   

2022

    

2021

  

Current:

                

Federal

   $ -     $ -  

State

     56       65  

Deferred:

                

Federal

     -       -  

State

     -       -  

Total provision for income taxes before valuation allowance

   $ 56     $ 65  

Change in valuation allowance

     -       -  

Total provision for income taxes

   $ 56     $ 65  

 

 

The significant components of our deferred tax assets and liabilities are as follows (in $’000):

 

   

December 31,

  
   

2022

    

2021

  

Deferred tax assets:

                

Accrued expenses

   $ 201     $ 31  

Net operating loss carryover

     9,105       9,317  

Goodwill and other intangibles

     59       74  

Deferred compensation

     51       57  

Depreciation

     110       112  

Deferred revenue

     6       22  

Lease liability

     1,081       1,222  

Interest expense

     196       88  

Other carryovers and credits

     2       2  

Total deferred tax assets

     10,811       10,925  
                 

Deferred tax liabilities:

                

Prepaid expenses

   $ (14

)

   $ (9

)

Right-of-use asset

     (1,068

)

     (1,219

)

Total deferred tax liabilities

     (1,082

)

     (1,228

)

Valuation Allowance

     (9,729

)

     (9,697

)

Net deferred tax asset (liability)

   $ -     $ -  

 

At December 31, 2022 and 2021, we had net operating losses (“NOL”) of approximately $41 million and $42.1 million, respectively, to offset future taxable income. A portion of the Company’s NOL will begin to expire in 2028.

 

Utilization of the net operating loss and credit carryforwards may be subject to a substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986. The annual limitation may result in the expiration of net operating losses and credit carryforwards before utilization.

 

Our provision for income taxes reflects the establishment of a full valuation allowance against deferred tax assets as of December 31, 2022, and 2021. Accounting Standards Codification Topic 740 Income Taxes requires management to evaluate its deferred tax assets on a regular basis to reduce them to an amount that is realizable on a more likely than not basis. During 2022, the valuation allowance increased by approximately $32 thousand due to continuing operations. In determining our provision/(benefit) for income taxes, net deferred tax assets, liabilities and valuation allowances, we are required to make judgments and estimates related to projections of profitability, the timing and extent of the utilization of net operating loss carryforwards and applicable tax rates. Judgments and estimates related to our projections and assumptions are inherently uncertain; therefore, actual results could differ materially from the projections.

 

We have adopted the provisions of the guidance related to accounting for uncertainties in income taxes. We have analyzed our current tax reporting compliance positions for all open years and have determined that it does not have any material unrecognized tax benefits. Accordingly, we have omitted the tabular reconciliation schedule of unrecognized tax benefits. We do not expect a material change in unrecognized tax benefits over the next 12 months. All of our prior federal and state tax filings from the 2018 tax year forward remain open under statutes of limitation. Operating losses generated in years prior to 2018 remain open to adjustment until the statute closes for the tax year in which the net operating losses are utilized.

 

The Company’s provision for income taxes attributable to continuing operations differs from the expected tax benefit amount computed by applying the statutory federal income tax rate of 21% to income before taxes for the years ended December 31, 2022 and 2021 primarily as a result of the following:

 

 

   

Year Ended December 31,

  
   

2022

    

2021

  

Federal statutory rate

     21.0

%

     21.0

%

State tax, net of income tax benefit

     (21.4

)%

     (2.6

)%

Change in state rates

     27.9

%

     -  

Effect of permanent differences

     6.5

%

     0.8

%

Stock compensation

     (34.98

)%

     (3.8

)%

Change in valuation allowance

     (27.2

)%

     (19.9

)%

Total

     (28.2

)%

     (4.5

)%