NOTE 13

INCOME TAXES

The components of income (loss) before income tax expense (benefit) by jurisdiction for continuing operations for the years ended December 31, consisted of the following (in thousands):

SCHEDULE OF INCOME (LOSS) BEFORE INCOME TAX (BENEFIT) EXPENSE 

The components of current and deferred federal and state income tax expense (benefit) for continuing operations for the years ended December 31, consisted of the following (in thousands):

SCHEDULE OF COMPONENTS OF INCOME TAX (BENEFIT) EXPENSE 

An overall reconciliation between the expected tax expense (benefit) using the federal statutory rate of 21% for each of the years ended 2023 and 2022 and the expense (benefit) for income taxes from continuing operations as reported in the accompanying Consolidated Statement of Operations is provided below (in thousands).

SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION 

The global intangible low-taxed income (“GILTI”) provisions under the Tax Cuts and Jobs Act of 2017 (the “TCJA”) require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the years ended December 31, 2023 and 2022. As the Canada and United Kingdom foreign subsidiaries are in loss positions for 2023, no GILTI inclusion is expected for these entities for the current year.

The Company had temporary differences and net operating loss carry forwards from both our continuing and discontinued operations, which gave rise to deferred tax assets as of December 31, 2023, and 2022 as follows (in thousands):

SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 

As of December 31, 2023, the Company assessed whether its deferred tax asset will more likely than not to be realized. This assessment included both positive and negative available evidences, which included the Company’s current contracts, cumulative loss, future reversal of existing taxable differences, and overall prospect of future business and earnings. Based on the weight of these available evidences, the Company concluded that it will more likely than not utilize its Federal and certain state net operating losses.

The Company has estimated net operating loss carryforwards (“NOLs”) for federal and state income tax purposes of approximately $19,450,000 and $72,859,000, respectively, as of December 31, 2023. These NOLs can be carried forward and applied against future taxable income, if any, and expire in various amounts starting in 2023. All of our federal NOLs were generated after December 31, 2017 and thus do not expire.

The Company accounts for uncertainties in income tax pursuant to ASC 740. A reconciliation of the beginning and ending amount of our recognized tax expense is summarized as follows (in thousands):

SCHEDULE OF RECOGNIZED TAX EXPENSES

The tax years 2020 through 2022 remain open to examination by taxing authorities in the jurisdictions in which the Company operates.

The Company had $76,000 and $0 federal income tax payable for the years ended December 31, 2023 and 2022, respectively.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (the “TCJA”) amended Section 174 to eliminate current-year deductibility of research and experimentation (“R&E”) expenditures and software development costs (collectively, “R&E expenditures”) and instead require taxpayers to charge their R&E expenditures to a capital account amortized over five years (15 years for expenditures attributable to R&E activity performed outside the United States). For each tax year 2023 and 2022, the Company has capitalized $2,059,000 of research and development expenses. While Management believes the estimate for 2023 to be materially accurate, the Company plans to complete a formal IRC Section 174 analysis in advance of filing the tax return for the year ended December 31, 2023.