XML 32 R16.htm IDEA: XBRL DOCUMENT v3.25.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Taxes  
Income Taxes

Note 9 - Income Taxes

 

The provision for income taxes consists of the following at December 31, 2024 and 2023:

 

 

 

2024

 

 

2023

 

Current tax provision

 

$—

 

 

$—

 

Deferred tax (expense)/benefit

 

 

(8,030)

 

 

17,764

 

Total tax benefit

 

$(8,030)

 

$17,764

 

 

A reconciliation of the expected federal statutory rate to our actual rate as reported for each of the periods presented is as follows:

 

 

 

2024

 

 

2023

 

Federal statutory rate

 

 

21%

 

 

21%

State income tax rate, net of federal benefit

 

 

3%

 

 

1%

Permanent differences

 

 

6%

 

 

4%

Change in valuation allowance

 

                (30

%)

 

                (26

%)

 

 

—

%

 

—

% 

Deferred Income Taxes

 

Deferred income taxes are the result of temporary differences between book and tax basis of certain assets and liabilities, timing of income and expense recognition of certain items and net operating loss carry-forwards. For the year ended December 31, 2024, we recognized a deferred tax expense of $8,030. For the year ended December 31, 2023, we recognized a deferred tax benefit of $17,764.

 

When required, we record a liability for unrecognized tax positions, defined as the aggregate tax effect of differences between positions taken on tax returns and the benefits recognized in the financial statements. Tax positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. No tax benefits are recognized for positions that do not meet this threshold. We have no uncertain tax positions that require us to record a liability.

 

We assess temporary differences resulting from different treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded in the consolidated balance sheets. We evaluate the realizability of our deferred tax assets on a regular basis, an exercise that requires significant judgment. In the course of this evaluation, we considered our recent history of tax losses, the economic conditions in which we operate, recent organizational changes and our forecasts and projections. We believe it is more likely than not that essentially none of our deferred tax assets will be realized, and we have recorded a valuation allowance for a significant portion of the net deferred tax assets that may not be realized as of December 31, 2024 and 2023.

 

The following is a schedule of the deferred tax assets and liabilities as of December 31, 2024 and 2023:

 

 

 

2024

 

 

2023

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carry forward

 

$40,482,038

 

 

$38,860,119

 

Intangible assets

 

 

972,200

 

 

 

1,011,900

 

Accrued liabilities

 

 

247,800

 

 

 

541,200

 

Deferred rent

 

 

—

 

 

 

19,200

 

Allowance for credit losses

 

 

40,500

 

 

 

461,000

 

Stock compensation expense

 

 

237,200

 

 

 

587,900

 

Interest expense

 

 

437,400

 

 

 

362,600

 

Other

 

 

40,300

 

 

 

40,900

 

Subtotal

 

 

42,457,438

 

 

 

41,884,819

 

Less valuation allowance

 

 

(41,477,681)

 

 

(40,619,657)

Total

 

 

979,757

 

 

 

1,265,162

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Intangible assets and property and equipment

 

 

472,423

 

 

 

826,300

 

Amortization of Goodwill

 

 

604,600

 

 

 

528,100

 

Total

 

 

1,077,023

 

 

 

1,354,400

 

Net deferred tax liabilities

 

$(97,266)

 

$(89,238)

 

The net operating losses amounted to approximately $112.8 million and expire beginning 2026 through 2038. Included in the federal net operating loss carryforwards are $44.3 million generated from 2018 to 2024 that will not expire and are limited to offset 80% of our taxable income for years beginning after December 31, 2020.

 

As of December 31, 2024, the Company has a net deferred tax liability of $97,266. The net deferred tax liability is due to goodwill that is amortized for tax purposes and a trade name that has an indefinite life, of which both are not being amortized for book purposes.

 

The deferred tax liability relating to goodwill and trade name can only be offset by 30% of interest limited by 163(j), the remainder, can be offset by up to 80% by NOLs generated in tax years ending December 31, 2018 and beyond, subject to IRC Section 382 limitations. The remaining portion that cannot be used remains as a liability. In future years, if the deferred tax assets are determined by management to be “more likely than not” to be realized, the recognized tax benefits relating to the reversal of the valuation allowance as of December 31, 2024 will be recorded.

Under the provisions of the Internal Revenue Code, the net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position.

 

The Company’s tax returns are subject to tax examinations by U.S. federal and state tax authorities until the respective statutes of limitation expire. The Company is subject to tax examinations by tax authorities for all taxation years commencing on or after 2006. Carryforward attributes generated in all years since inception remain subject to adjustment. Our state income tax returns are open to audit under the statute of limitations for the same periods.