Note 13 - Income Taxes

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

13. INCOME TAXES

The provision for income taxes for the years ended December 31, 2021 and 2020 consists of the following:

	For the Years Ended Year Ended December 31,
	2021			2020
Current provision
Federal	$	—		$	—
Foreign		—			—
State		21			51
Total current provision		21			51
Deferred provision
Federal		(1,636	)		3,464
State		(304	)		588
Total deferred provision		(1,940	)		4,052
Increase (decrease) in deferred tax valuation allowance		1,944			(4,055	)
Total provision for income taxes	$	25		$	48

During the year ended December 31, 2021, the Company recorded an expense for income taxes of $25, compared to an expense for income taxes of $48 during the year ended December 31, 2020.

The total change in the deferred tax valuation allowance was $1,944 and ($4,055) for the years ended December 31, 2021 and 2020, respectively. In 2021, the change in the deferred tax valuation allowance was the result of increases in deferred tax assets pertaining to federal and state NOLs. In 2020, the change in the deferred tax valuation allowance was the result of partial losses of NOLs associated with taking a worthless stock deduction related to the liquidation of the Services entity. Management believes that significant uncertainty exists surrounding the recoverability of deferred tax assets. As a result, the Company recorded a valuation allowance against the remaining deferred tax assets.

The tax effects of the temporary differences and NOLs that give rise to significant portions of deferred tax assets and liabilities are as follows:

	As of Year Ended December 31,
	2021			2020
Current deferred tax assets, net of valuation allowance		—			—
Noncurrent deferred income tax assets:
Net operating loss carryforwards	$	71,967		$	67,673
Intangible assets		453			1,968
Accrual and reserves		2,946			3,621
Leases		4,428			4,659
Other		8			6
Total noncurrent deferred tax assets		79,802			77,927
Valuation allowance		(72,010	)		(70,066	)
Noncurrent deferred tax assets, net of valuation allowance		7,792			7,861
Noncurrent deferred income tax liabilities:
Fixed assets		2,834			2,700
Leases		4,956			5,161
Total noncurrent deferred tax liabilities		7,790			7,861
Net deferred income tax liability	$	2		$	—

Certain prior year amounts have been reclassified to conform to current year presentation. Valuation allowances of $72,010 and $70,066 have been provided for deferred income tax assets for which realization is uncertain as of December 31, 2021 and 2020, respectively. A reconciliation of the beginning and ending amounts of the valuation is as follows:

Valuation allowance as of December 31, 2020	$	(70,066	)
Gross increase for current year activity		(1,944	)
Valuation allowance as of Balance at December 31, 2021	$	(72,010	)

As of December 31, 2021, the Company had federal and unapportioned state NOL carryforwards of approximately $277,310 of which $227,781 will begin to expire in 2026. The majority of the NOL carryforwards will expire in various years from 2028 through 2037. NOLs generated after January 1, 2018 will not expire.

The reconciliation between the statutory U.S. federal income tax rate and the Company’s effective income tax rate is as follows:

	For the Year Ended
	December 31,
	2021			2020
Statutory U.S. federal income tax rate		21.0	%		21.0	%
State and local income taxes, net of federal income tax benefit		(6.6	)		(8.0	)
Permanent differences		1.9			(2.6	)
Change in valuation allowance		29.2			(15.9	)
Equity compensation		14.5			-
Other		0.2			2.7
PPP loan forgiveness		(59.6	)		-
Effective income tax rate		0.6	%		(2.8	)%

The Company accounts for the uncertainty in income taxes by prescribing a minimum recognition threshold for a tax position taken, or expected to be taken, in a tax return that is required to be met before being recognized in the financial statements. The Company recognizes interest and penalties related to uncertain tax positions as income tax expense. As of December 31, 2021, the Company had no unrecognized tax benefits that could impact the income tax expense.

The Company files income tax returns in the U.S. federal and state jurisdictions. As of December 31, 2021, with few exceptions, the Company is no longer subject to federal or state income tax examinations by taxing authorities for years before December 31, 2017; however, taxing authorities have the ability to adjust NOL carryforwards in open tax years that may have been carried forward from closed years.   The Company’s 2008 and 2009 federal tax returns were examined in 2011 and no material adjustments were identified related to any of the Company’s tax positions. Although these periods have been audited, they continue to remain open until all NOLs generated in those tax years have either been utilized or expire.

Section 382 of the Internal Revenue Code of 1986, as amended (the “IRC”), generally imposes an annual limitation on the amount of NOL carryforwards and associated built-in losses that may be used to offset taxable income when a corporation has undergone certain changes in stock ownership. The Company’s ability to utilize NOL carryforwards and built-in losses may be limited, under this section or otherwise, by the Company’s issuance of common stock or by other changes in stock ownership. Upon completion of the Company’s analysis of IRC Section 382, the Company has determined that aggregate changes in stock ownership have resulted in an annual limitation of $14,284 on NOLs and built-in losses available for utilization based on the triggering event in 2010. To the extent the Company’s use of NOL carryforwards and associated built-in losses is significantly limited in the future due to additional changes in stock ownership, the Company’s income could be subject to U.S. corporate income tax earlier than it would if the Company were able to use NOL carryforwards and built-in losses without such annual limitation, which could result in lower profits and the loss of the majority of the benefits from these attributes.

In February 2013, the Company adopted a Stockholder Rights Plan, which was amended in February 2016 and approved by our stockholders (as amended, the “Rights Plan”), designed to preserve the Company’s substantial tax assets associated with NOL carryforwards under Section 382 of the IRC. On February 7, 2019, the Board of Directors (the “Board”) approved an amendment extending the Rights Plan for an additional three years, which was subsequently approved by the Company’s stockholders at the 2019 Annual Meeting of Stockholders held on April 23, 2019 (the “2019 Annual Meeting of Stockholders”). On February 3, 2022, the Board approved an amendment which included an extension of the Rights Plan for an additional three years. The amendment is subject to approval by the Company's stockholders at the 2022 Annual Meeting of Stockholders.

The Rights Plan is intended to act as a deterrent to any person or group, together with its affiliates and associates, being or becoming the beneficial owner of 4.9% or more of the Company’s common stock and thereby triggering a further limitation of the Company’s available NOL carryforwards. In connection with the adoption of the Rights Plan, the Board declared a non-taxable dividend of one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock to the Company’s stockholders of record as of the close of business on February 22, 2013. Since the record date, the Company has issued one Right with each newly issued share of its common stock. Until the distribution date (unless earlier redeemed or exchanged or upon expiration of the Rights, as applicable), the Rights will be evidenced by certificates of the Company's common stock and will be transferred only with such certificates. Each Right entitles its holder to purchase from the Company one one-thousandth of a share of the Company’s Series A Junior Participating Preferred Stock at an exercise price of $7.26 per Right, subject to adjustment. As a result of the Rights Plan, any person or group that acquires beneficial ownership of 4.9% or more of the Company’s common stock without the approval of the Board would be subject to significant dilution in the ownership interest of that person or group. Stockholders who owned 4.9% or more of the outstanding shares of the Company’s common stock as of February 12, 2013 will not trigger the preferred share purchase rights unless they acquire additional shares after that date.