Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.21.2
Income Taxes
9 Months Ended
Sep. 30, 2021
Income Taxes  
Income Taxes

Note 16. Income Taxes

As of December 31, 2020, the Company had federal net operating loss carryforwards of approximately $9.2 million and state net operating loss carryforwards of approximately $4.5 million. Losses will begin to expire, if not utilized, in 2032. Utilization of the net operating loss carryforwards may be subject to an annual limitation according to Section 382 of the Internal Revenue Code of 1986 as amended, and similar provisions.

The Company applies the standards on uncertainty in income taxes contained in ASC Topic 740, Accounting for Income Taxes. The adoption of this interpretation did not have any impact on the Company’s consolidated financial statements, as the Company did not have any significant unrecognized tax benefits during the three and nine months ended September 30, 2021 or the year ended December 31, 2020. Currently, the statute of limitations remains open subsequent to and including the year ended December 31, 2016.

In determining the quarterly provision for income taxes, the Company used the annual effective tax rate applied to year-to-date income. The Company’s annual estimated effective tax rate differs from the statutory rate primarily as a result of state taxes, permanent differences, and changes in the Company’s valuation allowance. The income tax effects of unusual or infrequent items including a change in the valuation allowance as a result of a change in judgment regarding the realizability of deferred tax assets are excluded from the estimated annual effective tax rate and are required to be discretely recognized in the interim period they occur.

The effective tax rate differed significantly in the nine months ended September 30, 2021 from prior periods. The Company has historically maintained a valuation allowance against deferred tax assets and reported only minimal current state tax expense. The Company recorded an income tax benefit of approximately $2.8 million and income tax expense of $33,500 for the nine months ended September 30, 2021 and 2020 respectively. The tax benefit for the nine months ended September 30, 2021 is primarily the result of the release of the valuation allowance against historical deferred tax assets and recognition of benefit from the current year projected loss. Net deferred tax liabilities of approximately $3.2 million recorded in connection with the E4:9 Holdings, Inc. and LiveBy, Inc acquisitions provide a source of taxable income to support the realizability of approximately $1.6 million of pre-existing deferred tax

assets, as well as currently generated deferred tax assets from the projected loss for the year. The taxable temporary differences relating to the amortizable intangible assets support the realization of the net operating loss carryforwards. As a result of the transactions, the Company discretely released the historical valuation allowance and recognized a deferred tax benefit on a portion of current year losses. The remainder of the benefit not recorded in the period ended September 30, 2021 is expected to be recognized in the period ending December 31, 2021. The Company expects to maintain a valuation allowance on current year remaining net deferred tax assets by year-end due to historical operating losses.