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INCOME TAXES
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 10—INCOME TAXES

 

(a) Composition of income (loss) before income taxes is as follows (in thousands):

 

  

Year ended

December 31,

 
   2023   2022 
Domestic  $138   $(631)

 

Income tax expense consists of the following (in thousands):

 

  

Year ended

December 31,

 
   2023   2022 
Current:          
Federal  $—   $— 
State and local   9    — 
 Current income tax expense    —    — 
Deferred:          
Federal   —    — 
State and local   —    — 
Deferred income tax expense   —    — 
Total income tax expense  $9   $— 

 

(b) Effective Income Tax Rates

 

Set forth below is a reconciliation between the federal tax rate and the Company’s effective income tax rates with respect to continuing operations:

 

   2023   2022 
   Year ended December 31, 
   2023   2022 
Statutory Federal rates   21%   21%
Increase (decrease) in income tax rate resulting from:          
Nondeductible/nontaxable items   2%   (3)%
State taxes   4%   — 
Rate change   69%   — 
Prior year rate change adjustment   173%   — 
Deferred true-ups   147%   — 
Valuation allowance   (409)%   (18)%
Effective income tax rates   7%   (—)%

 

(c) Analysis of Deferred Tax Assets and (Liabilities) (in thousands):

 

   2023   2022 
   As of December 31, 
   2023   2022 
Deferred tax assets (liabilities) consist of the following:          
Employee benefits and deferred compensation  $61   $49 
Deferred revenue   202    — 
Right-of-use assets   (41)   — 
Lease liability   47    — 
Fixed assets   (88)   (154)
Intangible assets   311    529 
Other temporary differences   46    3 
Section 174 expenditures   290    205 
Net operating loss and capital loss carryforwards   15,258    16,021 
Deferred tax assets, gross   16,086    16,653 
Valuation allowance   (16,086)   (16,653)
Net deferred tax assets  $—   $— 

 

 

Valuation allowances relate principally to net operating loss carryforwards related to the Company’s consolidated tax losses as well as state tax losses related the Company’s OmniMetrix subsidiary and book-tax differences related to asset impairments, deferred revenue, capitalized Section 174 expenditures, and stock-based compensation expense of the Company. The Company continually evaluates the likelihood of the realization of deferred tax assets and adjusts the carrying amount of the deferred tax assets by the valuation allowance to the extent the future realization of the deferred tax assets is more likely than not. The Company considers many factors when assessing the likelihood of future realization of its deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectation of future taxable income or loss, the carryforward periods available to the Company for tax reporting purposes, and other relevant factors. As of December 31, 2023, based on the Company’s history of earnings and its assessment of future earnings, management believes that it is more likely than not that future taxable income will not be sufficient to realize the deferred tax assets. During the year ended December 31, 2023, the gross deferred tax asset and the valuation allowance decreased by $567,000.

 

(d) Summary of Tax Loss Carryforwards

 

As of December 31, 2023, the Company had various operating loss carryforwards expiring as follows (in thousands):

 

Expiration  Federal   Capital Loss   State 
2023  $—   $556   $— 
2025 – 2031*   2,579           
2032 – 2037   61,351    —    14,818 
Unlimited   4,958    —    1,877 
Total  $68,888   $556   $16,695 

 

*   The utilization of a portion of these net operating loss carryforwards is limited due to limits on utilizing net operating loss carryforwards under Internal Revenue Service regulations for separate return limitation years.

 

Effective for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses incurred that are considered incidental to research and experimentation (R&E) activities under IRC Section 174. While taxpayers historically had the option of deducting these expenses under IRC Section 174, the December 2017 Tax Cuts and Jobs Act mandates capitalization and amortization of R&E expenses for tax years beginning after December 31, 2021. Expenses incurred in connection with R&E activities in the US must be amortized over a 5-year period if incurred. R&E activities are broader in scope than qualified research activities considered under IRC Section 41 (relating to the research tax credit). For the year ended December 31, 2023, the Company performed an analysis based on available guidance and capitalized the required R&E costs. The Company will continue to monitor this issue for future developments.

 

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examinations by federal, foreign, and state and local jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from 2019 to the present in the U.S. and from 2017 to 2018 in the Company’s foreign operations. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state and local tax authorities to the extent utilized in a future period.

 

The Company is also subject to certain non-income taxes such as value added taxes, sales taxes, and property taxes. The Company has taken certain positions that management feels, although not free from doubt, should not result in a successful challenge by certain tax authorities.