Income taxes

12 Months Ended

Dec. 31, 2021

Income taxes

Income taxes

Note 7 - Income taxes

Income (loss) before income taxes for the years ended December 31, 2021 and 2020 was $33.4 million and ($5.4) million, respectively.  Income tax expense (benefit) for the years ended December 31, 2021 and 2020 was $1.1 million and ($0.2) million, respectively. The income tax expense for each of the years ended December 31, 2021 and 2020 was for federal and state income tax at statutory rates applied to the adjusted pre-tax income for each of the periods.

The following summarizes the (benefit) / provision for income taxes:

Years Ended December 31,	2021		2020
(in thousands)
Current:
Federal	$	453	$	(428)
State and local		350		80
		803		(348)
Deferred:
Federal		267		80
State and local		70		83
		337		163
Expense (benefit) for income taxes	$	1,140	$	(185)

Reconciliation of the Company’s actual tax rate to the U.S. Federal statutory rate is as follows:

Years ended December 31,	2021		2020
Income tax rates
- Statutory U.S. federal rate	21	%	21	%
- State income taxes, net of federal benefit	0	%	0	%
- Excess tax benefits related to stock compensation	(4)	%	0	%
- AMT credit and NOL Carryback	0	%	8	%
- PPP Benefit	(2)	%	—
- Lobbying	0	%	(1)	%
- Meals & Entertainment	0	%	(1)	%
- Officer’s Life Insurance	0	%	4	%
- Change in valuation allowance	(12)	%	(28)	%
Total	3	%	3	%

As of December 31, 2021, the Company had NOLs of approximately $29.3 million, none of have expiration dates and all of which are subject to annual limitations of 80% of tax earnings. As of December 31, 2021, the Company had state tax NOLs of approximately $21.0 million expiring in various years.

Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. The net deferred income tax assets (liabilities) consisted of the following at:

December 31,	2021		2020
(in thousands)
- Depreciation & amortization	$	(6,365)	$	(7,424)
- Reserves for doubtful accounts		398		324
- Inventory reserve		977		1,408
- Non qualified stock options		612		1,219
- Net operating losses		7,270		11,963
- AMT credit		—		—
- Deferred interest		10,381		10,114
- Deferred bonus		—		74
- Accrued Expenses		184		—
- Valuation allowance		(15,149)		(19,033)
Total		(1,692)		(1,355)

We review the likelihood that we will realize the benefit of our deferred tax assets, and therefore the need for valuation allowances, on an annual basis in the fourth quarter of the year, and more frequently if events indicate that a review is required. In determining the

requirement for a valuation allowance, the historical and projected financial results are considered, along with all other available positive and negative evidence.

Concluding that a valuation allowance is not required is difficult when there is significant negative evidence that is objective and verifiable, such as cumulative losses in recent years. We utilize a rolling twelve quarters of pre-tax income or loss adjusted for significant permanent book to tax differences, as well as non-recurring items, as a measure of our cumulative results in recent years. Based on our assessment as of December 31, 2018, 2019, 2020 and 2021, we concluded that due to the uncertainty that the deferred tax assets will not be fully realized in the future, we recorded a valuation allowance of approximately $11.3 million during 2018, and due to additional losses, increased the valuation allowance through 2019 and 2020 to $19.0 million. For the year ended December 31, 2021, and due to additional income that resulted in the utilization of net operating losses of $16.8 million, we reduced the valuation allowance by $3.9 million resulting in an ending balance of $15.1 million as of December 31, 2021.

The Company’s 2015 and prior federal tax years have been closed. The Company operates in many states throughout the United States and, as of December 31, 2021, the state statutes of limitations remain open for tax years subsequent to 2016. The Company recognizes interest and penalties, if any, relating to income taxes as a component of the provision for income taxes