Income Taxes

12 Months Ended

Dec. 31, 2024

Income Taxes

Income Taxes

15. Income Taxes

The income tax benefit/(provision) consisted of the following for the years ended December 31, 2024 and 2023 (in thousands):

	Year Ended December 31,
	2024			2023
Current income taxes:
Federal	$	-		$	-
State and local		(169	)		(98	)
Foreign		(43	)		-
Total current		(212	)		(98	)
Deferred income taxes:
Federal		-			-
State and local		-			-
Total deferred		-			-
Total income tax benefit/(provision)	$	(212	)	$	(98	)

The income tax provision attributable to income before income tax benefit for the years ended December 31, 2024 and 2023 differed from the amounts computed by applying the U.S. federal statutory tax rate of 21%, as a result of the following (in thousands):

	Year Ended December 31,
	2024			2023
U.S. federal statutory income tax benefit/(provision)	$	(397	)	$	56
Increase in income tax benefit resulting from:
State and local income tax benefit/(provision), net of federal effect		(135	)		(69	)
Change in the valuation allowance for net deferred income tax assets		(246	)		219
Stock-based compensation		595			(418	)
Other, net		(29	)		114
Income tax benefit/(provision)	$	212	)	$	(98	)

As of December 31, 2024 and 2023, significant components of net deferred income tax assets and liabilities were as follows (in thousands):

	December 31,
	2024			2023
Deferred income tax assets:
Accrued expenses	$	290		$	392
Deferred revenue		661			466
Net operating loss carry-forwards		5,729			6,451
Stock-based compensation		812			747
Other		14			20
Total deferred tax assets		7,506			8,076
Valuation allowances		(5,417	)		(4,782	)
Net deferred tax assets		2,089			3,294
Deferred tax liabilities:
Property and equipment		(15	)		(41	)
Prepaid expenses and other		(1,028	)		(723	)
Intangible assets		(1,046	)		(2,530	)
Total deferred tax liabilities		(2,089	)		(3,294	)
Net deferred tax assets (liabilities)	$	-		$	-

As of December 31, 2024, we had NOL and research credit carry-forwards for U.S. federal income tax reporting purposes of approximately $17,372 and $2, respectively. $7,002 of the NOLs will begin to expire in 2032 through 2037, and the remaining $10,370 of the NOLs will not expire. The research tax credit will begin to expire in 2039 through 2040. Approximately $1,230 of the NOL carryforwards and $2 of the research credit carryforwards relate to the NetSapiens and Centric acquisitions.  A valuation allowance of $5,417 and $4,782 was recorded against our gross deferred tax asset balance as of December 31, 2024 and 2023, respectively.

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. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the evidence available, it is more-likely-than-not that such assets will not be realized. In making the assessment under the more-likely-than-not standard, appropriate consideration must be given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods by jurisdiction, unitary versus stand-alone state tax filings, our experience with loss carryforwards expiring unutilized, and all tax planning alternatives that may be available. As of December 31, 2024, management reviewed the weight of all the positive and negative evidence available. Management reviewed negative evidence such as three years of cumulative pretax loss in the U.S. federal tax jurisdiction, and positive evidence such as projections of future pretax income and the duration of statutory carry-forward periods. As of December 31, 2024 the Company has a cumulative pretax loss for the three year lookback excluding the gain on the sale of property and equipment, which is considered significant objectively verifiable negative evidence. Management also evaluated projections of future pretax income and the duration of statutory carry-forward periods to determine if the NOL carryforwards could be utilized in whole or in part before they expire unutilized. Forecasts and projections of future income are inherently subjective and therefore generally are given less weight, based on the extent to which the assumptions can be objectively verified based on historical experience. Although historical trends utilized in our projections are objectively verifiable we assigned less weight to this positive evidence given the subjective nature of assumptions in projections. Management reviewed negative evidence related to experience of credits and loss carryforwards expiring unutilized, and determined that although negative evidence exists, it was not significant evidence, as the current loss carryforwards do not begin to expire until 2032 and therefore risk is minimal. After reviewing the weight of the positive and negative evidence, management determined that the positive evidence was not sufficient enough to overcome the negative evidence of cumulative pretax losses for the three-year lookback to conclude that it is more likely than not that deferred tax assets of $5,417 are realizable.  Therefore, a valuation allowance of $5,417 was recorded against our gross deferred tax asset balance as of December 31, 2024.

We also have state NOL and research and development credit carryforwards of approximately $30,266 and $13, which expire on specified dates as set forth in the rules of the various states to which the carryforwards relate. The company has recorded a valuation allowance of $13 and $19 against the research and development credit carryforwards as of December 31, 2024 and 2023, respectively.

Accounting guidance clarifies the accounting for uncertain tax positions and requires companies to recognize the impact of a tax position in their financial statements, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. Although we believe our estimates are reasonable, there can be no assurance that the final tax outcome of these matters will not be different from that which we have reflected in our historical income tax provisions and accruals. Such a difference could have a material impact on our income tax provision and operating results in the period in which it makes such determination.

The aggregate changes in the balance of unrecognized tax benefits during the years ended December 31, 2024 and 2023 were as follows (in thousands):

Balance as of January 1, 2023	$	-
Reductions due to lapsed statute of limitations		-
Balance as of December 31, 2023		-
Reductions due to lapsed statute of limitations		-
Balance as of December 31, 2024	$	-

Estimated interest and penalties related to the underpayment or late payment of income taxes are classified as a component of income tax provision in the consolidated statements of operations. There were no accrued interest and penalties as of December 31, 2024 and 2023, respectively.

Our U.S. federal income tax returns for fiscal 2021 through 2024 are open tax years. We also file in various states, with few exceptions, we are no longer subject to state income tax examinations by tax authorities for years prior to fiscal 2019.