Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Significant components of the provision for income taxes from continuing operations for the years ended December 31, 2022 and 2021 are as follows (in thousands):

	Year Ended December 31,
	2022		2021
Current provision:
Federal	$	—	$	4
State	87		20
Total current provision	87		24
Deferred provision:
Federal	82		6
State	5		30
Total deferred provision	87		36
Total income tax provision	$	174	$	60

Intraperiod allocation rules require us to allocate our provision for income taxes between continuing operations and other categories or comprehensive income (loss) such as discontinued operations. As described in Note 3. Discontinued Operations, the results of our Mobile Healthcare reportable segment have been reported as discontinued operations for 2021. As a result of the intraperiod allocation rules, for the years ended December 31, 2022 and 2021, the Company recorded a tax expense of $0 thousand and $79 thousand, respectively, for discontinued operations.

Differences between the provision for income taxes and income taxes at the statutory federal income tax rate for continuing operations are for the years ended December 31, 2022 and 2021 as follows:

	Year Ended December 31,
	2022		2021
Income tax expense at statutory federal rate	21.0	%	21.0	%
State income tax expense, net of federal benefit	3.8	%	(0.7)	%
Permanent differences and other	(8.9)	%	5.6	%
PPP Loan Forgiveness	—	%	10.5	%
Revaluation of deferred taxes due to change in effective state tax rates	3.5	%	2.4	%
Expiration of net operating loss and tax credit carryovers	(66.1)	%	(40.6)	%
Stock compensation	(2.1)	%	(0.9)	%
Reserve for uncertain tax positions and other reserves	2.9	%	2.6	%
Change in valuation allowance	42.5	%	(0.6)	%
Provision for income taxes	(3.4)	%	(0.7)	%

Our net deferred tax assets (liabilities) as of December 31, 2022 and 2021 consisted of the following (in thousands):

	December 31,
	2022		2021
Deferred tax assets:
Net operating loss carryforwards	$	15,707	$	19,651
Research and development and other credits	72		72
Reserves	369		477
Operating lease liabilities	1,214		2,068
Interest carryover	278		22
Other, net	1,258		785
Total deferred tax assets	18,898		23,075
Deferred tax liabilities:
Fixed assets and other	(147)		(316)
Right of use assets	(1,192)		(1,974)
Intangibles	(1,889)		(2,850)
Total deferred tax liabilities	(3,228)		(5,140)
Valuation allowance for deferred tax assets	(15,846)		(18,007)
Net deferred tax liabilities	$	(176)	$	(72)

The Company recognizes federal and state deferred tax assets or liabilities based on the Company’s estimate of future tax effects attributable to temporary differences and carryovers. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. The Company considers projected future taxable income and planning strategies in making this assessment. As of December 31, 2022, as a result of a three-year cumulative loss and recent events, we concluded that a valuation allowance was necessary to offset substantially all of our deferred tax assets. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. The Company’s valuation allowance balance at December 31, 2022 is $15.8 million, offsetting the Company’s deferred tax assets. The Company will continue to evaluate its deferred tax balances to determine any assets that are more likely than not to be realized.

As of December 31, 2022, we had federal and state income tax net operating loss carryforwards after estimated section 382 limitations of $60.9 million and $38.3 million, respectively. Federal and certain state net operating losses of $4.4 million and $2.6 million,respectively, generated after 2018 carry forward without expiration. Pre-2018 federal loss carryforwards began to expire in 2023 unless previously utilized. Federal and state loss carryforwards of approximately $16.0 million and $4.5 million expired in 2022, and approximately $1.5 million of federal net operating losses and $3.6 million of state net operating losses are set to expire in 2023, unless previously utilized. We also have federal and California research and other credit carryforwards of approximately $0.3 million and $2.1 million, respectively, as of December 31, 2022. The federal credits began to expire in 2023. The California research credits have no expiration. Pursuant to Internal Revenue Code Sections 382 and 383, use of our net operating loss and credit carryforwards may be limited because of a cumulative change in ownership greater than 50%. As of December 31, 2022, the Company has not experienced a change in ownership greater than 50%; however, some of the tax attributes acquired with the DMS Health businesses are subject to such limitations due to ownership changes of greater than 50% that may have occurred or which may occur in the future. A valuation allowance has been recognized to offset the deferred tax assets, as realization of such assets has not met the “more likely than not” threshold required under the authoritative guidance of accounting for income taxes. In addition, the net operating losses acquired in the ATRM acquisition are also limited under Internal Revenue Code Section 382.

The following table summarizes the activity related to our unrecognized tax benefits for the years ended December 31, 2022 and 2021 (in thousands):

	December 31,
	2022		2021
Balance at beginning of year	$	2,561	$	2,778
Expiration of the statute of limitations for the assessment of taxes	(147)		(217)
Balance at end of year	$	2,414	$	2,561

Included in the unrecognized tax benefits of $2.4 million at December 31, 2022 was $2.0 million of tax benefits that, if recognized, would reduce our annual effective tax rate, subject to the valuation allowance. The Company does not expect our unrecognized tax benefits to change significantly over the next 12 months.

We file income tax returns in the U.S. and in various state jurisdictions with varying statutes of limitations. We are no longer subject to income tax examination by tax authorities for years prior to 2017; however, our net operating loss carryforwards and research credit carryforwards arising prior to that year are subject to adjustment. Our policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. The accrued interest as of December 31, 2022 and 2021, and interest and penalties recognized during the years ended December 31, 2022 and 2021 were of insignificant amounts.