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

13. INCOME TAXES

 

The components of loss before income taxes are summarized below:

 

   2023   2022 
   Year Ended December 31, 
   2023   2022
(Restated)		 
Loss before income taxes          
U.S. operations  $(1,898)  $(5,412)
Loss before income taxes  $(1,898)  $(5,412)

 

The components of the income tax provision were as follows:

 

   2023   2022 
   Year Ended December 31, 
   2023   2022  
Current        
State  $-   $7 
Total income tax provision  $-   $7 

 

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:

 

   2023   2022 
   Year Ended December 31, 
   2023   2022
(Restated)		 
Federal income tax at statutory rate  $(399)  $(1,136)
State and local income tax, net   -    6 
Other permanent items   (7)   (2)
Expired foreign tax credits   28    153 
Valuation allowance   378    1,010 
True-up   -    (24)
Total  $-   $7 

 

The Company’s provision for income taxes reflects an effective tax rate on loss before income taxes of 0.0% in 2023, as compared to (0.1)% in 2022. The consistency in the Company’s effective tax rate during 2023 primarily reflects the increase in state taxes, the increase in the valuation allowance and increase in net operating losses.

 

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

 

   2023   2022 
   December 31, 
   2023   2022
(Restated)		 
Noncurrent deferred income taxes          
Total assets  $89   $59 
Total liabilities   (89)   (59)
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:

 

   2023   2022 
   December 31, 
   2023   2022
(Restated)		 
Deferred tax assets          
U.S. net operating loss carry forward  $4,930   $4,048 
Non-deductible reserves   1,874    1,530 
Tax credits   4,272    4,300 
Fixed assets   -    29 
Intangibles   1,391    1,516 
Valuation allowance   (12,378)   (11,365)
Net deferred tax assets   89    59 
Deferred tax liabilities          
Fixed assets   (89)   (53)
Other   -    (6)
Net deferred tax liabilities   (89)   (59)
Deferred asset, net  $-   $- 

 

As of December 31, 2023, the Company has $4,233 in foreign tax credits (“FTCs”) carryforward. These FTCs begin to expire in December 2024.

 

The assessment of the amount of value assigned to the Company’s deferred tax assets under the applicable accounting rules is judgmental. The Company is required to consider all available positive and negative evidence in evaluating the likelihood that the Company will be able to realize the benefit of its 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 the Company’s deferred tax assets is dependent on generating sufficient taxable income in future periods. The Company does not believe that it is more likely than not that future taxable income will be sufficient to allow the Company to recover any of the value assigned to the Company’s deferred tax assets. Accordingly, the Company has provided for a valuation allowance of the Company’s FTCs as the Company does not anticipate generating sufficient foreign source income. In addition, the Company has 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.

 

The Company has federal net operating loss (“NOLs”) carryforwards of approximately $18,228 as of December 31, 2023. The Federal NOLs were generated in the taxable years ending after December 31, 2017. As a result, the NOLs are eligible to be carried forward indefinitely, but generally may only offset up to 80% of federal taxable income earned in a taxable year.

 

The Company’s net operating losses may be subject to annual Section 382 limitations due to ownership changes that could impact the future realization. As of December 31, 2023, the Company has not experienced an ownership change within the meaning of Sec. 382(g) and will continue to monitor its cumulative ownership changes for purposes of Sec. 382. The Company has $12,467 of deferred tax assets on which it is taking a full valuation allowance. The total valuation allowance recorded is $12,378, representing an increase of $1,013 from December 31, 2022. The Company has approximately $4,233 of FTCs 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 year ended December 31, 2023, the company was able to utilize their business interest income to support interest expense deductions, resulting in an interest expense deduction of $231 from prior year carryforwards. The amount available for carryover to future periods of IRC 163(j) as of December 31, 2023 is $2,897. 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 2020 and forward by the U.S. Internal Revenue Service and most state jurisdictions.