INCOME TAXES

9 Months Ended

Sep. 30, 2024

INCOME TAXES

INCOME TAXES

5.    INCOME TAXES

The Company’s effective tax rate on the net loss before income taxes was  1.6% and 23.3% for the three months ended September 30, 2024 and 2023, respectively.  The Company’s effective tax rate on the net income before income taxes was  (114.7)% and 22.4% for the nine months ended September 30, 2024 and 2023, respectively.

A reconciliation of the federal statutory corporate tax rate to the Company’s effective tax rate is as follows:

	Nine Months Ended		Nine Months Ended
	September 30, 2024		September 30, 2023
U.S. statutory federal tax rate	21.00	%	21.00	%
State tax, net of federal tax	(0.11)	%	0.13	%
Change in valuation allowance	(132.06)	%	—	%
Stock options	—	%	0.15	%
Section 162(m); Limit on Compensation	(0.13)	%	—	%
Other	(0.13)	%	—	%
Return-to-provision and other	(3.27)	%	1.14	%
Effective tax rate	(114.70)	%	22.42	%

The Company uses the recognition and measurement provisions of the FASB ASC Topic 740, Income Taxes (“Topic 740”), to account for income taxes. The provisions of Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing net deferred tax assets cannot be met. Furthermore, the weight given to the potential effect of such evidence  should be commensurate with the extent to which it can be objectively verified. The Company reviewed the operating results, as well as all of the positive and negative evidence related to realization of such deferred tax assets, to evaluate the need for a valuation allowance.  As a result of this review, as of September 30, 2024, the Company concluded that a $9.9 million valuation is needed on the net deferred tax asset. As of December 31, 2023, the valuation allowance for state net operating losses was $283 thousand.

The effective tax rate for the nine months ended September 30, 2024 was different from the federal statutory rate due primarily to the increase of the valuation allowance on the Company’s Deferred tax asset.