INCOME TAXES

12 Months Ended

Dec. 31, 2023

INCOME TAXES

INCOME TAXES

11. INCOME TAXES:

A reconciliation of the statutory federal income taxes to the recorded provision for income taxes from continuing operations is as follows:

	For the Years Ended December 31,
	2023		2022
	(In thousands)
Statutory federal tax expense	$	2,627	$	11,145
Effect of state taxes, net of federal benefit		1,134		3,308
Effect of state rate and tax law changes		79		629
Impairment of goodwill, intangible assets, and long-lived intangible assets		—		908
Non-deductible officer’s compensation		1,738		1,871
Interest carryforward adjustment		771		—
PPP loan income forgiveness		—		(1,591)
Change in valuation allowance		1,443		(234)
Internal revenue code ("IRC") Section 382 adjustments		(404)		(334)
Net operating loss ("NOL") expirations		203		268
Uncertain tax positions		(77)		(495)
Other		430		943
Provision for income taxes	$	7,944	$	16,418

The statutory federal tax rate used for the years ended December 31, 2023 and 2022 is 21.0%. Major components of the effective tax rate for the years ended December 31, 2023 and 2022 are related to net operating loss limitations, net operating loss expirations, interest carryforwards, impairments of goodwill, intangible assets, and long-lived assets, limitation of officer's compensation under IRC Section 162(m), uncertain tax positions, state income taxes, and non-taxable PPP loan income forgiveness for the year ended December 31, 2022.

The components of the provision for income taxes from continuing operations are as follows:

	For the Years Ended
	December 31,
	2023		2022
	(In thousands)
Federal:
Current	$	—	$	—
Deferred		3,952		12,572
State:
Current		2,796		1,844
Deferred		1,196		2,002
Provision for income taxes	$	7,944	$	16,418

Deferred Income Taxes

Deferred income taxes reflect the impact of temporary differences between the assets and liabilities recognized for financial reporting purposes and amounts recognized for tax purposes. Deferred taxes are based on tax laws as currently enacted. Deferred tax assets are reduced by a valuation allowance if, based upon the weight of available evidence, it is not more likely than not that the Company will realize some portion or all of the deferred tax assets. The significant components of the Company’s deferred tax assets and liabilities are as follows:

	As of December 31,
	2023		2022
	(In thousands)
Deferred tax assets:
Allowance for doubtful accounts	$	2,084	$	2,149
Accruals		2,722		304
Fixed assets		—		493
Stock-based compensation		615		521
Net operating loss carryforwards		57,428		89,377
Lease liability		8,084		8,901
Interest expense carryforward		21,977		23,788
Total deferred tax assets		92,910		125,533
Valuation allowance for deferred tax assets		(1,473)		(30)
Total deferred tax asset, net of valuation allowance		91,437		125,503
Deferred tax liabilities:
Intangible assets		(102,233)		(129,026)
Available-for-sale securities		—		(23,779)
Fixed assets		(873)		—
Right of use asset		(7,748)		(8,123)
Partnership interests		(283)		(2,412)
Deferred financing costs		(734)		(958)
Uncertain tax positions		(397)		(444)
Other		(107)		(150)
Total deferred tax liabilities		(112,375)		(164,892)
Net deferred tax liability	$	(20,938)	$	(39,389)

As of December 31, 2023, the Company had pre-tax federal and state NOL carryforward amounts of approximately $386.7 million and $285.4 million, respectively. Certain of the federal and state NOLs are subject to annual limitations under Internal Revenue Code Section 382. Additionally, the amount of the state NOLs may change if future apportionment factors differ from current factors. The Company continues to assess potential tax strategies, which if successful, may reduce the impact of the annual limitations and potentially recover NOLs that otherwise would expire before being applied to reduce future income tax liabilities. If successful, the Company may be able to recover additional federal and state NOLs

in future periods, which could be material. If the Company concludes that it is more likely than not that the Company will be able to realize additional federal and state NOLs, the tax benefit could materially impact future quarterly and annual periods. However, if these potential tax strategies do not meet the more likely than not threshold, the Company may claim these additional NOLs as unrecognized tax benefits. The federal and state NOLs expire in various years from 2024 to 2039.

As of December 31, 2023, the gross deferred tax assets of approximately $92.9 million were primarily the result of federal and state net operating losses and the IRC Section 163(j) interest expense carryforward. A valuation allowance of $1.5 million and $30,000 was recorded against the Company’s gross deferred tax asset balance as of December 31, 2023 and 2022, respectively, and is related to state jurisdictions where it is not more likely than not the deferred tax assets will be realized.

The assessment to determine the value of the deferred tax assets to be realized under ASC 740 is highly judgmental and requires the consideration of all available positive and negative evidence in evaluating the likelihood of realizing the tax benefit of the deferred tax assets in a future period. Circumstances may change over time such that previous negative evidence no longer exists, and new conditions should be evaluated as positive or negative evidence that could affect the realization of the deferred tax assets. Since the evaluation requires consideration of events that may occur in some years in the future, significant judgment is required, and the Company’s conclusion could be materially different if certain expectations do not materialize.

Realization of the Company’s federal and state net operating losses is dependent on generating sufficient taxable income in future periods, and although the Company believes it is more likely than not future taxable income will be sufficient to utilize most of the net operating losses, realization is not assured and future events may cause a change to the judgment of the realizability of these deferred tax assets. If a future event causes the Company to re-evaluate and conclude that it is not more likely than not, that all or a portion of the deferred tax assets are realizable, the Company would be required to establish a valuation allowance against the assets at that time which would result in a charge to income tax expense and a decrease to net income in the period which the change of judgment is concluded.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2023		2022
	(In thousands)
Balance as of January 1	$	654	$	1,277
Deductions for tax positions as a result of the lapse of applicable statutes of limitation		(79)		(623)
Balance as of December 31	$	575	$	654

The nature of the uncertainties pertaining to the Company’s income taxes is primarily due to various state income tax positions that affect the amount of state NOLs available to be applied to reduce future state income tax liabilities, and prior year restatement adjustments that the Company has not yet amended on its 2022 income tax returns. The unrecognized tax benefits liability accrued on the Company’s balance sheet decreased by $0.1 million during the year ended December 31, 2023, and $0.6 million during the year ended December 31, 2022, respectively, primarily as a result of the lapse of statute of limitations in certain jurisdictions. As of December 31, 2023, the Company had unrecognized tax benefits of $0.6 million, which if recognized, would reduce our net operating loss carryforward.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. There is no material amount of interest and penalties recognized in the statement of operations and the balance sheet for the year ended December 31, 2023. The Company believes that it is reasonably possible that a decrease of up to $52,000 of unrecognized tax benefits related to state tax exposures may be necessary within the coming year.

The Company files income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions and is subject to examination by the various taxing authorities. The Company’s open tax years for federal income tax

examinations include the tax years ended December 31, 2020 through 2023. For state and local purposes, the open years for tax examinations include the tax years ended December 31, 2019 through 2023. To the extent that net operating losses are utilized, the year of the loss may be subject to examination.