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INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES

12. INCOME TAXES

 

The components of loss before income taxes are summarized below:

 

   2022   2021 
   Year Ended December 31, 
   2022   2021 
Loss before income taxes          
U.S. operations  $(3,631)  $(2,183)
Loss before income taxes  $(3,631)  $(2,183)

 

The components of the income tax provision were as follows:

 

   2022   2021 
   Year Ended December 31, 
   2022  2021 
Current      
State  $7   $(16)
Total income tax provision  $7   $(16)

 

 

A reconciliation from the statutory U.S. income tax rate and the Company’s effective income tax rate, as computed on loss before taxes, is as follows:

 

   2022   2021 
   Year Ended December 31, 
   2022   2021 
Federal income tax at statutory rate  $(763)  $(459)
State and local income tax, net   (145)   (108)
Other permanent items   (3)   (379)
Expired foreign tax credits   154    178 
Valuation allowance   766    611 
True-up   -    143 
Other   (2)   (2)
Total  $7    $(16 )

 

The Company’s provision for income taxes reflects an effective tax rate on loss before income taxes of (0.2)% in 2022, as compared to 0.7% in 2021. The consistency in the Company’s effective tax rate during the year ended December 31, 2022 primarily reflects the increase in state income taxes, valuation allowance and net operating losses.

 

The net deferred income tax asset (liability) was comprised of the following:

 

   2022   2021 
   December 31, 
   2022   2021 
Noncurrent deferred income taxes          
Total assets  $92   $82 
Total liabilities   (92)   (82)
Net noncurrent deferred income tax asset   -    - 
Net deferred income tax asset  $-   $- 

 

 

 

The tax effect of temporary differences between GAAP accounting and federal income tax accounting creating deferred income tax assets and liabilities were as follows:

 

   2022   2021 
   December 31, 
   2022   2021 
Deferred tax assets          
U.S. net operating loss carry forward  $3,604   $2,600 
Non-deductible reserves   1,530    1,390 
Tax credits   4,300    4,454 
Fixed assets   30    24 
Intangibles   1,517    1,738 
Valuation allowance   (10,889)   (10,124)
Net deferred tax assets   92    82 
Deferred tax liabilities          
Fixed assets   (53)   (45)
Other   (39)   (37)
Net deferred tax liabilities   (92)   (82)
Deferred asset, net  $-   $- 

 

The composition of the Company’s foreign tax credits (FTC) carryforward as of December 31, 2022 is as follows:

 

   FTC   Expiration 
Tax year-ended  Carryover   Year 
December 31, 2017  $1,181    December 31, 2027 
December 31, 2016   2,265    December 31, 2026 
December 31, 2015   135    December 31, 2025 
December 31, 2014   652    December 31, 2024 
December 31, 2013   28    December 31, 2023 
   $4,261      

 

The assessment of the amount of value assigned to our deferred tax assets under the applicable accounting rules is judgmental. We are required to consider all available positive and negative evidence in evaluating the likelihood that we will be able to realize the benefit of our deferred tax assets in the future. Such evidence includes scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and the results of recent operations. Since this evaluation requires consideration of events that may occur some years into the future, there is an element of judgment involved. Realization of our deferred tax assets is dependent on generating sufficient taxable income in future periods. We do not believe that it is more likely than not that future taxable income will be sufficient to allow us to recover any of the value assigned to our deferred tax assets. Accordingly, we have provided for a valuation allowance of the Company’s foreign tax credits as we do not anticipate generating sufficient foreign source income. In addition, we have provided for a full valuation allowance on the domestic deferred tax assets as the combined effect of future domestic source income and the future reversals of future tax assets and liabilities will likely be insufficient to realize the full benefits of the assets.

 

As of December 31, 2022, the Company has a net operating loss carryforward of $14.3 million. The Company has $10.9 million of deferred tax assets on which it is taking a full valuation allowance. The total valuation allowance recorded is $10.9 million, representing an increase of $766 from December 31, 2021. The Company has approximately $4.3 million of foreign tax credits for which it has provided a full valuation allowance and $39 of research and development credits which expire in 2032.

 

The Company has interest expense subject to a tax deduction limitation under IRC 163(j). The new calculation arising from the 2017 tax reform requires an adjusted taxable income to be calculated by, among other things, adding back to taxable income any depreciation, amortization, or depletion deductions for the taxable years beginning after December 31, 2017, and before January 1, 2022, as well as removing any GILTI inclusions. When calculating the adjusted taxable income for this purpose, the Company did not have sufficient taxable income in previous years to deduct interest expense exceeding the limitation, therefore creating a carryover of business interest expense to future years. For the quarter ended December 31, 2022, $467 of interest expense disallowed from prior years has been utilized to offset current interest income reported. The amount available for carryover to future periods of IRC 163(j) as of December 31, 2022 is $3.1 million. This carryover is available indefinitely.

 

Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

 

The tax years subject to examination by major tax jurisdiction include the years 2019 and forward by the U.S. Internal Revenue Service and most state jurisdictions, and the years 2019 and forward for the Canadian jurisdiction.