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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

Note 13 – Income Taxes

In 2014 the Company recorded a valuation allowance against its deferred tax assets, reducing the carrying value of those assets to zero as a result of historical losses. The following table summarizes the change in the valuation allowance during 2023 and 2024, (in thousands):

 

Balance as of December 31, 2022

 

$

4,428

 

Change during 2023

 

 

(2,205

)

Balance as of December 31, 2023

 

 

2,223

 

Change during 2024

 

 

1,290

 

Balance as of December 31, 2024

 

$

3,513

 

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. At December 31, 2023, management reevaluated the Company's performance and forecast for the next five years and concluded that there is sufficient positive evidence to conclude that is it more likely than not that additional deferred tax assets of $2.2 million are realizable. At December 31, 2024 management reevaluated the Company's performance and forecast for the following five years and concluded that it is more likely than not that the Company will be able to use $24.3 million of the remaining $41.0 million federal NOL carryforwards. Based on management's new estimate, the Company believes it is appropriate to increase the valuation allowance to a total of $3.5 million, recognizing $1.3 million as a discrete expense (tax effected at 21%) at December 31, 2024. The change to the valuation allowance was primarily due to the application of our nonaccrual loan policy, which resulted in a decrease to our estimates related to the utilization of net operating loss carryforwards in 2025.

At December 31, 2024, the Company has aggregate federal net operating loss carry forwards of $41.0 million. These net operating loss carry forwards begin to expire in 2025.

The Company’s utilization of restricted net operating tax loss carry forwards against future income for tax purposes is restricted pursuant to the “change in ownership” rules in Section 382 of the Internal Revenue Code. These rules, in general, provide that an ownership change occurs when the percentage shareholdings of 5% direct or indirect stockholders of a loss corporation have, in aggregate, increased by more than 50 percentage points during the immediately preceding three years.

Restrictions in net operating loss carry forwards occurred in 2001 as a result of the acquisition of the Company by Street Capital. Pursuant to Section 382 of the Internal Revenue Code, the annual usage of the Company’s net operating loss carry forwards was limited to approximately $2.5 million per annum until 2008 and $1.7 million per annum through December 31, 2023. As of December 31, 2023, all of the Company's restricted net operating loss carry forwards have been fully utilized. The Company has no net operating loss carry forwards limited under Section 382 of the Internal Revenue Code as of December 31, 2024.

All loss taxation years remain open for audit pending the application of the respective tax losses against income in a subsequent taxation year. In general, the statute of limitations expires three years from the date that a company files a tax return applying prior year tax loss carry forwards against income for tax purposes in the later year. The 2021 through 2023 taxation years remain open for audit.

The Company is subject to state income tax in multiple jurisdictions. In most states, the Company does not have tax loss carry forwards available to shield income attributable to a particular state from being subject to tax in that particular state.

The reported tax expense varies from the amount that would be provided by applying the statutory U.S. Federal income tax rate to the income before income tax expense for the following reasons in each of the years ended December 31, (in thousands except for percentages):

 

 

 

2024

 

 

2023

 

 

 

Dollars

 

 

Percent

 

 

Dollars

 

 

Percent

 

Expected income tax expense at federal statutory rate

 

$

1,885

 

 

 

21.0

%

 

$

2,939

 

 

 

21.0

%

Increase (reduction) in taxes resulting from:

 

 

 

 

 

 

 

 

 

 

 

 

State income taxes

 

 

656

 

 

 

7.3

%

 

 

996

 

 

 

7.1

%

Non-deductible expenses (permanent differences)

 

 

(22

)

 

 

(0.2

)%

 

 

(196

)

 

 

(1.4

)%

Change in valuation allowance

 

 

1,290

 

 

 

13.9

%

 

 

(2,205

)

 

 

(15.8

)%

Changes in unrecognized tax benefits

 

 

(18

)

 

 

(0.2

)%

 

 

(14

)

 

 

(0.8

)%

Income tax expense

 

$

3,791

 

 

 

41.8

%

 

$

1,520

 

 

 

10.1

%

Income tax expense (benefit) for the years ended December 31, 2024 and 2023 was comprised of the following (in thousands):

 

 

 

2024

 

 

2023

 

Current provision for income taxes:

 

 

 

 

 

 

Federal

 

$

-

 

 

$

-

 

State

 

 

684

 

 

 

1,188

 

     Total

 

 

684

 

 

 

1,188

 

 

 

 

 

 

 

 

Deferred provision for income taxes:

 

 

 

 

 

 

Federal

 

 

3,145

 

 

 

465

 

State

 

 

(38

)

 

 

(133

)

     Total

 

 

3,107

 

 

 

332

 

 

 

 

 

 

 

 

Total provision for income taxes

 

$

3,791

 

 

$

1,520

 

 

The components of the net deferred tax assets as of December 31, 2024 and 2023 are as follows (in thousands):

 

 

2024

 

 

2023

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carry forwards

 

$

9,059

 

 

$

11,012

 

Stock based compensation

 

 

551

 

 

 

348

 

Intangibles

 

 

282

 

 

 

224

 

Operating lease liabilities

 

 

617

 

 

 

628

 

Equity method investments

 

 

194

 

 

 

239

 

Allowance for credit loss

 

 

104

 

 

 

176

 

Accruals

 

 

120

 

 

 

131

 

Other

 

 

118

 

 

 

136

 

Total gross deferred tax assets

 

 

11,045

 

 

 

12,894

 

 

 

 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

 

Trade names

 

 

(681

)

 

 

(708

)

Customer relationships

 

 

(68

)

 

 

(48

)

Equity method investments

 

 

(20

)

 

 

(28

)

Operating lease right-of-use assets

 

 

(588

)

 

 

(599

)

Other

 

 

(167

)

 

 

(173

)

Total gross deferred tax liabilities

 

 

(1,524

)

 

 

(1,556

)

Total deferred tax assets

 

 

9,521

 

 

 

11,338

 

 

 

 

 

 

 

Less: valuation allowance

 

 

(3,513

)

 

 

(2,223

)

Deferred tax assets, net of valuation allowance

 

$

6,008

 

 

$

9,115

 

 

The Inflation Reduction Act (“IRA”) was enacted on August 16, 2022. The IRA has not had a material impact to the Company’s financial statements for the tax years ended December 31, 2024 or 2023 and management does not believe it will have a material impact on the Company's financial statements in future tax years.

Uncertain Tax Positions

The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. Upon adoption of this principle in 2007, the Company derecognized certain tax positions that, upon examination, more likely than not would not have been sustained as a recognized tax benefit. As a result of derecognizing uncertain tax positions, the Company has recorded a cumulative reduction in its deferred tax assets of approximately $4.4 million associated with prior years’ tax benefits, which are not expected to be available primarily due to change of control usage restrictions, and a reduction in the rate of the tax benefit associated with all of its tax attributes.

Due to the Company’s historic policy of applying a valuation allowance against its deferred tax assets, the effect of the above was an offsetting reduction in the Company’s valuation allowance. Accordingly, the above reduction had no net impact on the Company’s financial position, operations or cash flow. As of December 31, 2024, the total unrecognized tax benefit has been determined to be $4.4 million.

In the unlikely event that these tax benefits are recognized in the future, the amount recognized at that time should result in a reduction in the Company’s effective tax rate.

The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. Because the Company has tax loss carry forwards in excess of the unrecognized tax benefits, the Company did not accrue for interest and penalties related to unrecognized tax benefits either upon the initial derecognition of uncertain tax positions or in the current period.

It is possible that the total amount of the Company’s unrecognized tax benefits will significantly increase or decrease within the next 12 months. These changes may be the result of future audits, the application of “change in ownership” rules leading to further restrictions in tax losses arising from changes in the capital structure of the Company, reductions in available tax loss carry forwards through future merger, acquisition and/or disposition transactions, failure to continue a significant level of business activities, or other circumstances not known to management at this time. At this time, an estimate of the range of reasonably possible outcomes cannot be made.