Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

15. INCOME TAXES

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not expected to be realized.

The following is a summary of the components giving rise to the income tax provision (benefit) for the years ended December 31:

The provision (benefit) for income taxes consists of the following:

	2023			2022
Currently payable:
Federal	$	-		$	15,000
State		4,000			-
Foreign		-			119,000
Total currently payable		4,000			134,000
Deferred:
Federal		(5,392,000	)		(14,839,000	)
State		(79,000	)		(492,000	)
Foreign		(48,000	)		(58,000	)
Total deferred		(5,519,000	)		(15,390,000	)
Less: increase in allowance		5,519,000			15,427,000
Net deferred		-			38,000
Total income tax loss (benefit)	$	4,000		$	172,000

Individual components of deferred tax assets and liabilities are as follows:

	2023			2022
Deferred tax assets:
Net operating loss carry forwards	$	21,496,000		$	24,975,000
Net operating loss IRC 382 limited		9,634,000			9,634,000
Unrealized loss on securities		4,655,000			5,753,000
Equity issued for services		190,000			190,000
Goodwill and other intangibles		63,000			34,000
Investment in pass-through entity		11,000			11,000
Deferred revenue		176,000			176,000
Operating Lease Liability		1,713,000			1,935,000
Depreciation and amortization		1,000			24,000
Other		2,507,000			696,000
Gross deferred tax assets		40,446,000			33,794,000
Deferred tax liabilities:
Goodwill and other intangibles		3,369,000			2,822,000
Depreciation and amortization		614,000			(194,000	)
Right -of-use asset		1,625,000			1,846,000
Gross deferred tax liabilities		5,608,000			4,474,000
Less: valuation allowance		(34,838,000	)		(29,357,000	)
Net deferred tax liabilities	$	-		$	(38,000	)

At December 31, 2023 and 2022, the Company has approximately $138.9 million and $108.4 million in federal net operating loss carryforwards (“NOLs”), respectively, available to reduce future taxable income. Under the provisions of the Internal Revenue Code, the net operating losses are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Certain tax attributes are subject to an annual limitation as a result of certain cumulative changes in ownership interest of significant shareholders which could constitute a change of ownership as defined under Internal Revenue Code Section 382. For the year ended December 31, 2021, the Company has completed a full analysis of historical ownership changes and determined that a portion of the net operating losses have a limitation on future deductibility. Approximately $43.8 million of net operating losses incurred prior to 2020 will be unable to offset future taxable income and have been reserved via a valuation allowance to reduce the deferred tax asset to the expected realizable amount, leaving $2.9 million available for use which expire at various dates through 2038 and the residual which never expire. This analysis is currently being performed for tax year ending December 31, 2023. Additionally, at December 31, 2023 and 2022, the Company had approximately $20.7 million and $43.6 of California and Illinois NOL carry-forwards, respectively, which expire through 2043. The NOL carry-forwards may be limited in certain circumstances, including ownership change and have been fully reserved via a valuation allowance.

The valuation allowance for deferred tax assets increased approximately $5.5 million and $15.4 million for the years ended December 31, 2023 and December 31, 2022, respectively. The valuation allowance for deferred tax liability increased approximately $1.1 million in the year ended December 31,2023 and decreased approximately $9.9 million for the year ended December 31, 2022.

The differences between the United States statutory federal income tax rate and the effective income tax rate in the accompanying consolidated statements of operations are as follows:

	2023		2022
Statutory United States federal rate	21.0	%		21.0	%
State income taxes net of federal benefit	0.38	%		0.51	%
Permanent differences	(6.68	)%		0.03	%
Other	(9.04	)%		0.93	%
Foreign taxes	-	%		(0.07	)%
Change in valuation allowance	(5.66	)%		(22.66	)%
Effective rate	-	%		(0.25	)%

The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2023 and 2022 the Company recognized no interest and penalties.

The Company files income tax returns in the U.S. federal jurisdiction and various states. The tax years 2020-2023 generally remain open to examination by major taxing jurisdictions to which the Company is subject.