Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

14.  Income Taxes

Income tax provision (benefit) is as follows for the years ended:

	DECEMBER 31,
	2022		2021
Current provision
State	$	20,000	$	100,000
Foreign		26,982		50,165
Total		46,982		150,165
Deferred provision (benefit)
Federal		4,717,527		567,316
State		298,832		(83,032	)
Foreign		14,534		5,998
Total		5,030,893		490,282
Income tax (benefit) provision	$	5,077,875	$	640,447

Income tax provision (benefit) effective rates, which differs from the federal and state statutory rate as follows for the years ended:

	DECEMBER 31,
	2022			2021
Statutory federal income tax rate		21.0	%		21.0	%
State, net of federal benefit		4.0	%		7.5	%
Non-deductible expenses		-5.7	%		-19.7	%
Change in valuation allowance		-45.9	%		-15.1	%
Foreign rate differential		0.0	%		-3.8	%
Return to accrual difference true-ups		0.3	%		-15.1	%
Other		-0.2	%		-0.1	%
Deferred tax adjustment and true-up		-1.0	%		88.2	%
Combined effective tax rate		-27.4	%		62.9	%

The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets (liabilities) consisted of the following:

	DECEMBER 31,
	2022			2021
Deferred tax assets:
Net operating loss carryforwards	$	10,584,372		$	9,501,008
Alternative minimum tax credit		45,650			45,650
Share-based compensation		475,297			659,338
Intangible amortization		(48,740	)		208,036
Lease liability		1,555,503			1,554,888
Other assets		167,825			251,553
Total deferred tax assets		12,779,907			12,220,473
Less: valuation allowance		(10,503,243	)		(1,999,630	)
Total deferred tax assets, net		2,276,664			10,220,843
Deferred tax liabilities:
Goodwill amortization		116,530			3,041,451
Depreciation		324,959			210,755
Foreign intangible amortization		334,973			409,269
Other liabilities		11,354			12,830
Lease asset		1,401,939			1,419,056
Total deferred tax liabilities		2,189,755			5,093,361
Net deferred tax asset	$	86,909		$	5,127,482

As of December 31, 2022, the Company had approximately $37.7 million in net operating loss (NOL) carry forwards available to offset future taxable income for federal income tax purposes that consist of $29.8 million that will expire between 2022 and 2036 and $7.9 million related to years after December 31, 2017 that does not have an expiration under current tax law. NOLs arising in tax years beginning in 2018, 2019, and 2020 may only reduce 80 percent of taxable income every year but can be carried forward indefinitely. Included in the recorded deferred tax asset, the Company had a benefit of approximately $47.4 million available to offset future taxable income for state income tax purposes. These state NOL carry forwards expire between 2024 and 2040.

Under the provisions of the Internal Revenue Code, the net operating losses (“NOL”) and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit 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 of 1986, respectively, as well as similar state tax provisions. This could limit the amount of tax attributes that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be 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. Utilization of the net operating loss and tax credits carryforwards may be limited by “ownership change” rules, as defined in Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. This annual limitation may result in the expiration of the net operating losses and credits before utilization.

Changes in the valuation allowance for the years ended were as follows:

	DECEMBER 31,
	2022			2021
Beginning balance	$	(1,999,630	)	$	(2,152,768	)
Decreases (increases)		(8,503,613	)		153,138
Ending balance	$	(10,503,243	)	$	(1,999,630	)

The Company’s valuation allowance predominantly consisted of domestic net operating loss carryforwards and certain state net operating loss carryforwards. 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. On the basis of this evaluation, management recorded a valuation allowance against all domestic deferred tax assets because management has determined that it is more likely than not that the Company will not earn income sufficient to realize the deferred tax assets during the carry forward period. During the year ended December 31, 2022, the Company increased the valuation allowance by $8.4 million. If management’s assumptions change and we determine we will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction of income tax expense.

The Company files U.S. federal income tax returns with the Internal Revenue Service (“IRS”) as well as income tax returns in various states and certain foreign countries. The Company may be subject to examination by the IRS for tax years 2003 and forward. The Company may be subject to examinations by various state taxing jurisdictions for tax years 2003 and forward. The Company may be subject to examination by various foreign countries for tax years 2017 forward. As of December 31, 2022, the Company is currently not under examination by the IRS, any state or foreign tax jurisdiction. The Company did not have any unrecognized tax benefits at either December 31, 2022 or 2021. In the future, any interest and penalties related to uncertain tax positions will be recognized in income tax expense.